FPA warns on return of commissions
Removing the ban on conflicted remuneration on general advice could potentially re-introduce commissions into the advice space and increase the risk of mis-selling, according to the Financial Planning Association (FPA).
The FPA has used its submission on the Future of Financial Advice (FOFA) legislative amendments to warn the Government that removing this ban could have a great impact on how financial planning businesses conduct their business and could ultimately result in further erosion of public confidence in Australia’s financial system.
“The FPA does not support any return of commissions on investments (including upfront or trail commissions), especially in superannuation and we request that the Government resist any commissions-based model of general advice used to generate sales of financial products,” the submission read.
Allowing conflicted remuneration in general advice could shift licensees or advisers from providing personal advice in order to earn volume-based sales commissions and would make 'personal’ financial advice less available, the industry body warned.
“In effect, this proposal would be likely to promote a new stream of 'general advice’ licensee businesses and sales advisers incentivised by sales commissions.”
The FPA has also pointed out that it is general advice that is usually more conflicted than personal advice, because it is provided by advisers employed by product manufacturers such as banks and superannuation funds.
Furthermore, there is no paper trail for general advice, such as Statements of Advice or other disclosure requirements when providing general advice, the FPA said.
“The draft regulatory impact statement contends, on the subject of exempting 'general advice’ from the definition of conflicted remuneration, that general advice is 'less likely to influence a person’s financial decision making’ because it 'does not take into account the personal circumstances of the client’,” the submission read.
“We disagree with this analysis of general advice,” the FPA added, saying it is in direct contradiction to research conducted by the Australian Securities and Investments Commission (ASIC) and international best practice in regulation.
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