The Parliamentary Secretary to the Treasurer, Chris Pearce, has indicated the Government will not intervene with prescriptive legislation as to whether fee or commission based remuneration structures are most appropriate for the industry, and as such the financial services industry must resolve the issue itself.
At an Investment and Financial Services Association member luncheon he said: “I feel strongly it is not an issue for the Government. It is not our position to dictate to the industry about how you will be paid. I believe very strongly that is a decision for you as an industry to make.
“I think it is an issue you do need to sort out quickly. I welcome the debate and I wholeheartedly encourage you to approach this debate with a level head and with the best interests of consumers and the sector at heart,” Pearce added.
While he declared the Government would have no involvement in resolving the deliberation either way, he emphasised the importance of making sure remuneration methods were closely related to the value of advice provided.
“I think increasingly your clients, and I see this as an emerging trend more and more, are more directly matching the value of the advice you give with how much they pay for it,” Pearce said.
“Whether they pay for advice up front, or later through commission structures, investors do need to feel that they are getting value for money in my view,” he added.
According to Pearce, another important issue for the industry to be mindful of was managing the expectations of consumers, as many complaints regarding the sector centred on a feeling from clients that the service they received was not what they had anticipated.
He felt the key to addressing the situation was through greater consumer education.
“Poor consumer knowledge and understanding is an issue the industry does need to deal with simply because it affects the way your products are perceived,” Pearce said.
He thought the Financial Services Reform Act (FSR) also had a part to play here.
“That’s what’s been driving me to improve FSR. To make sure that the information consumers get is the information that they need, the information they will actually read, and therefore the information they will actually take in and remember,” Pearce explained.
