Potential mis-selling and poor advice are likely to once again occur in the forestry managed investment scheme (FMIS) sector if amendments to the Future of Financial Advice legislation are allowed to proceed, according to Industry Super Australia (ISA).
In its submission to the Senate Economics References Committee inquiry into the structure and development of FMIS the industry super fund body stated the current regulatory regimes for financial advice and consumer protection were lacking as was disclosure in the FMIS sector.
It called for the maintenance of the FOFA regime as introduced on 1 July 2013, urging it be given time to take effect, and the Australian Securities and Investments Commission (ASIC) be given greater intervention powers as recommended by the Financial System Inquiry.
“Recent attempts to wind back FOFA threaten to mark a return to the days of sales-driven advice and an obligation on the adviser to ensure that the advice is appropriate, which is a lower standard than the best interests obligation, and failed victims of previous collapses such as Great Southern and Timbercorp,” ISA stated.
“Elements of the proposed amendments will result in the re-emergence of practices such as conflicted remuneration which were central to the mis-selling of forestry MIS such as Timbercorp.”
“In particular we wish to bring to the Committee’s attention the risk stemming from the use of using general advice to push complex products such as forestry MIS, conflicted remuneration on complex products and the availability of forestry MIS to retail investors in the absence of a robust best interests duty for financial advisers.”
ISA stated the original FOFA legislation “goes some way to addressing the problems that led to inappropriate and fraudulent distribution of MIS” and the ban on commissions to advisers as well as the seven stage best interest duty provided stronger protections for consumers of managed investment scheme
The group also called for an improved disclosure regime stating that even when disclosure was complaint and at a high level it was not an adequate tool to protect consumers who may have failed to understand the risk/return trade-off involved.
