Thursday, 20 March 2014

Watching your superannuation fail to perform as promised?

It will only get worse, because this is what Abbott Government Senator Arthur Sinodinos had organised (before he stepped aside as Assistant Treasurer for the length of the NSW ICAC Operation Credo-Spicer Investigationin order to facilitate the gouging of workers’ superannuation by financial advisers and banks:

• remove the need for clients to renew their ongoing fee arrangement with their adviser every two years (also known as the 'opt-in' requirement);
• remove the requirement to provide an annual fee disclosure statement to clients in ongoing fee arrangements prior to 1 July 2013;
• remove the 'catch-all' provision from the list of steps an advice provider may take to satisfy the best interests obligation;
• facilitate the provision of scaled advice;
• clarify the meaning of ‘intrafund advice’;
• clarifying the operation of the 'mixed benefits' provisions; and
• amend the application of the ban on conflicted remuneration including:
– exempting general advice;
– exempting monetary benefits paid in relation to certain life risk insurance
offerings inside superannuation;
– amending the exemption for execution-only services to provide that only
advice provided by the party receiving the benefit is considered;
– broadening the exemption for training and education that relates to
operating a financial services business; and
– broadening the existing exemption for basic banking products to allow an
agent or employee of an authorised deposit-taking institution to access the
exemption in a broader range of circumstances.
The Abbott Government cannot pretend that it doesn't understand that this is a retrograde step.

In February 2003 the Australian Securities and Investment Commission released a report on a survey on the quality of financial planning advice which found:

A common observation by several judges was that clients’ interests did not appear to be the sole factor in the plan strategy or product selection. They characterised this practice as “commission-driven product selling, not impartial advice”.

“… like many others, [this plan] is just another ‘selling tool’ for managed
funds” – Judge 4

“This generic pro-forma style plan is [a] financial needs analysis / sales
justification document. “ – Judge 2

These plans often gave no reason why the recommended course of action was
preferred, or the reasons appeared skewed to justify the product recommendation.

“Plan seemed to focus straight to wealth accumulation via the advisor’s
company master trust. No explanation as to why, the pros and cons, and
how this recommendation was going to fully meet the client needs and
objectives.” – Judge 9

Recommendations frequently overlooked options that may be more cost-effective:
  • adviser elects to waive product entry fee — rarely recommended;
  • low cost superannuation funds — never recommended;
  • pay off mortgage rather than invest cash — rarely recommended;
  • salary sacrifice — recommended in a minority of plans.

About half the plans recommended selling at least some of the client’s existing

The combination of commission-based remuneration and management sales
targets sits uncomfortably with good practice and professional advice.

“The main recommendation was to rollover client’s superannuation into a
fund [master trust] from which the advisor receives commissions. No
analysis or discussion to justify this. ‘Churning’ in a newer guise.”
Judge 7

“This plan is unusual in that it exhibits some degree of advice integrity, a
characteristic not commonly evident in many other plans reviewed. “
Judge 4

There appears to be a mismatch between what the consumers thought they were
getting and what they actually received. Our consumer volunteers asked for a
comprehensive financial plan....

Nor can the Abbott Government pretend that weakening or dismantling consumer protections found in the Corporations Amendment (Future of Financial Advice) Act 2012 does not have potential negative consequences.

One only has to look back at the 2009 $3 billion collapse of Storm Financial Ltd to see the personal and financial devastation for an estimated 3,000 investors left in its wake.

Retirees who lost money in the collapse of financial institutions are becoming angry about the Abbott Government's plans. However Abbott himself is insouciant.

The Guardian 18 March 2014:

Victims who lost billions in the collapse of financial advice firms such as Storm Financial are joining consumer groups, superannuant and seniors associations and industry superannuation funds in an angry backlash against the government’s plan to wind back new consumer protection laws.

The Coalition’s much-vaunted “repeal day” on Wednesday will include the Corporations Amendment (Streamlining of Future of Financial Advice) Bill to implement the windback – once again allowing advisers to earn sales commission and other so-called “conflicted remuneration” from providing general financial advice and removing the requirement for financial advisers to tell customers how much they are receiving in commissions every year and give them the chance to opt out of the arrangements every second year.

With the legislation certain to be blocked by Labor and the Greens in the existing Senate, which sits until 30 June, and many of the existing requirements set to take effect from July, the government is also planning to rush through regulations to try to implement its windback in the meantime.

The opposition leader, Bill Shorten, said the government’s proposed changes were “bad laws” and would mean “the wholesale dismantling of oversight to protect our consumers”.
But Tony Abbott said on Monday the former Labor government’s legal protection laws – which his government is seeking to water down – were “a classic case of regulatory overkill” because it was already an “ethical given” that professional advisers would take into account the best interests of their clients….

Any readers who may be thinking of lobbying against repeal of the Corporations Amendment (Future of Financial Advice) Act 2012 might like to view this new website, Save Our FOFA, which states that as part of our campaign to protect consumers, we want to help them lobby local MPs and senators.

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