The Federal Government should use the superannuation industry legacy product rationalisation regime as a model for the remainder of the financial services industry, according to the Financial Services Council (FSC).
The FSC has used its pre-Budget submission to plead for Government action to clear the way for financial services product rationalisation and has cited the current rationalisation regime in superannuation as having provided significant benefits to consumers.
It pointed out that the current super rationalisation regime permits a consumer to be transferred to another product, or have their existing product changed, broadly if the Trustee determined it to be in the interests of those consumers.
“Our view is that the regulatory aspects of the rationalisation regime for other product types should be modelled on the regime for super, with the exception that the relevant test be undertaken at the collective consumer level in all cases,” the SCT submission said.
Elsewhere in its submission, the FSC said it had surveyed members to develop conservative estimates of the benefits that an effective product rationalisation regime would deliver.
It stated:
• 38 individual IT systems could be closed, of 79 legacy IT systems across the sample;
• 286 life insurance products and 77 managed investment schemes could be closed; and
• $22.6 billion in funds under management could be transferred to contemporary products.
“FSC members forecast that through these changes they could reduce costs to consumers by $94 million over the near term through a staged rationalisation program,” the submission said.
“However, the current mechanism for rationalising products is too difficult and expensive. As a result, consumers remain in higher cost financial products.”
