In an astonishing act of corporate chutzpah, the industry campaigning aggressively against consumer protections on financial planning is launching a nearly $2 million campaign to lure people into spending tens or hundreds of thousands of dollars on financial advice.
The Financial Planning Association has been running a grassroots campaign to lobby independent MPs to block several the “Future of Financial Advice” reforms to financial planning regulation initiated by the government following scandals such as Storm, and the chronic underperformance of retail super funds compared to industry super funds courtesy of massive commissions. In particular, the FPA has campaigned hard against the proposal to require planners to obtain explicit “opt-in” agreement from customers to deduct fees for financial advice. It remains the last hold-out in a wealth management industry that is otherwise finally coming around to the view that huge commissions and financial advisers essentially acting as spruikers for wealth management products have to end.
This “opt-in” requirement would end the exploitation of Australians’ disengagement on superannuation, which sees up to 4 million Australians lose tens or hundreds of thousands of dollars in retirement income for financial advice they never get and never ask for. As Crikey recently showed, even many financial planners are critical of industry colleagues who rely on automatic deductions rather than maintaining active relationships with clients.
Nonetheless, the FPA campaign looks set to be successful. The independents, and particularly Rob Oakeshott, appeared to have been convinced by the FPA campaign that planners’ interests should be put ahead of consumer interests (the opposition is resolutely opposed to opt-in as its policy is essentially directed by the interests of financial planners). On Monday, the government went further in its efforts to get parliamentary support for opt-in, after moving to a two-year, rather than annual, opt-in requirement. In legislation unveiled by Assistant Treasurer Bill Shorten, opt-in would become mandatory only prospectively, and not apply to the millions of existing client relationships that see Australians paying commissions without being aware of it.
The scale of what is at stake here has received minimal attention in the media. The current arrangements, which the independents appear bent on perpetuating, cost millions of Australians thousands of dollars a year in lost income, which accumulates over a working life to eventually mean significantly smaller retirement incomes. The money is funnelled instead into the pockets of financial planners and the wealth management industry, which is now essentially controlled by the Big Four banks and AMP. The result is costly to individuals and to future taxpayers, as smaller retirement incomes mean greater reliance on taxpayer support in the future.
The FPA now wants to see more Australians pouring money into the pockets of its members. In a print, TV and online campaign targeted at “consumers aged 35 to 64 who have at least $150,000 of investable assets” to be launched on September 18, the FPA bizarrely compares financial planners to aircraft designers, scientists, judges and doctors. But in a further sign of deepening divisions within the industry, the FPA campaign is also intended to attack planners who aren’t part of the association, telling consumers to avoid anyone who isn’t a member.
The FPA says the campaign is intended to “end the free ride” enjoyed by non-members. “Free ride” is of course an apt description of a planners who rely on automatic deductions of commissions from the accounts of Australians who aren’t even aware they’re being billed for advice they never sought or asked for. “Consumers don’t know where to turn for advice they can rely on,” the accompanying press release quotes FPA chief Mark Rantall as saying, conveniently overlooking consumers who don’t want advice but pay for it anyway.
Hopefully, the FPA has tightened up its internal processes if it’s going to start boasting about itself to consumers. Emmanual Cassimatis of Storm Financial was still a member until November last year, nearly two years after ASIC started investigating Storm and 18 months after the company went into liquidation. “Always look for a member of the Financial Planning Association,” says the TV ad. Well, perhaps not always.