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Consumer groups champion Murray reforms

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Australia’s peak consumer advocate has hailed the Murray inquiry’s blueprint for the financial system as a victory for bank customers and superannuation members.

The wide-ranging inquiry, chaired by former Commonwealth Bank boss David Murray, has made 44 recommendations to the Abbott government aimed at improving financial stability and consumer protections in the banking, insurance and superannuation sectors.

CHOICE chief executive Alan Kirkland said the inquiry’s proposals vindicated the recent decision of the Senate to overturn the government’s controversial changes to financial advice laws.

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“The report confirms the need for strong protections for consumers seeking financial advice, as currently delivered by the Future of Financial Advice protections,” he said.

“We see this as a welcome end to the FoFA debate.”

The Murray inquiry is also recommending that the regulatory crackdown on sales commissions be extended to life insurance products.

It wants upfront commissions on life policies reduced so that financial advisers have less incentive to roll clients into different products each year.

Research published recently by the Australian Securities and Investments Commission found that many advisers were receiving commissions of up to 130 per cent of the value of a policyholder’s premium.

Credit card surcharges

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Consumer groups reacted positively to the inquiry’s plan to overhaul existing rules that allow airlines, taxi companies, travel agencies and other businesses to slug customers up to three per cent if they pay for services with a credit card.

However, Mr Kirkland questioned how the recommendation would be implemented.

“We already have a rule that limits sky-high credit card surcharges, but the problem is no one has the role or power to enforce it,” he said.

“This report recommends further defining surcharging limits but stops short of any enforcement or penalties for businesses not playing by the rules.”

Mr Kirkland believes that consumers were destined to continue to pay excessive surcharges unless an effective enforcement system was introduced.

“Businesses like Qantas and Virgin continue to charge card fees out of all proportion to the costs of processing,” he said.

“Only an effective regulator and strong penalties will make change their ways.”

Superannuation – a move to default income streams

Mr Kirkland welcomed the inquiry’s recommendations on superannuation, which include a proposal to introduce income streaming as a default option for when workers retire.

Under the change, superannuation members will receive their retirement savings as an income stream unless they notify their fund that they would prefer a lump sum payment.

The proposal also received the thumbs-up from industry and retail superannuation bodies.

Industry Super Australia’s chief executive David Whiteley commended the inquiry for resisting the push by major banks to bundle business banking services with employee super offers.

“This is a sensible response, as bundling would very likely have come at a cost to member returns and national savings,” he said.

“Independent” trustees

Superannuation nest eggHowever, Mr Whiteley questioned the inquiry’s recommendation that a majority of trustees on super fund boards be independent.

If implemented, the proposal would abolish the representative trustee model associated with industry funds.

“I think it’s fashionable for some people to suggest there should be more independent directors on boards of super funds, but as yet no convincing evidence has been advanced for that to occur,” he said.

“The representative trustee model has been at the heart of a structure that has seen industry super funds members typically better off when they retire.”

Mr Whiteley acknowledged that the inquiry’s push for super funds to lower administration fees would “inevitably” accelerate the process of consolidation in the industry.

The Murray report noted that Australia’s superannuation industry was fragmented and that the high number of small funds was contributing to the sector’s inability to reduce fees.

The report has recommended that the Fair Work Commission continue to play a role in the selection of super funds to be offered by employers.

While industry funds support this proposal, the Financial Services Council – the body representing retail super funds – reacted negatively.

“Fees can come down further through increased competition,” said FSC chief executive John Brogden.

“However the FSI fails to recognise that maintaining the Fair Work Commission closed shop in default super will stymie competition and further reduction in fees.”

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