The Abbott Government’s push to dilute consumer protection in the financial advice industry has drawn a sceptical response from its Financial System Inquiry.
The nine-member committee, chaired by former Commonwealth Bank boss, David Murray, has raised concerns about conflicts of interest in the financial planning industry, arguing in its interim report published today that they may undermine the quality of service delivered to consumers.
“The Inquiry considers the principle of consumers being able to access advice that helps them meet their financial needs is undermined by the existence of conflicted remuneration structures in financial advice,” the committee stated in the report.
Under reforms to be introduced by the Abbott government this month, sellers of financial products, such as financial planners, will be allowed to receive incentive payments for selling an investment product from a fund manager so long as it is not a “commission”.
The controversial change has attracted wide-ranging criticism from consumer advocates such as Choice who have argued that it creates incentives for financial planners to push investments products on consumers that may not be in their interests.
The Murray committee’s interim report also notes that disclosure rules in the financial advice industry have failed consumers and that current legislation may need to be overhauled to recognize sales practices that pervade the industry.
It is also raising the prospect of establishing an enhanced public register of financial advisers that would include details of advisers’ qualifications and previous regulatory breaches.
Mr Murray’s committee is conducting a wide-ranging inquiry into the Australian financial system.
While the interim report did not contain any concrete recommendations, the committee also raised concerns about conflicts of interest in the mortgage broking industry.
Although many Australians believe that mortgage brokers are independent, many, in fact, are tied to networks owned by major banks, NAB and Commonwealth Bank.
Commonwealth Bank, for example, owns Aussie Home Loans.
The Murray committee is concerned that links between these banks and mortgage brokers have the potential to distort the ways in which brokers direct borrowers to lenders.
The committee reaffirmed support for Australia’s “four pillars policy” which imposes a ban on mergers between the four major banks – NAB, ANZ, Commonwealth and Westpac.
MORE TO COME