Industry Super Australia (ISA) has fired a last shot across the bows of retail financial advice in the final business days before the release of the Financial Systems Inquiry (FSI) calling for the "conflict-ridden, vertically integrated business models of the big banks" to be addressed by the inquiry.
The calls comes as FSI chair David Murray is set to provide an update on the inquiry in a speech to the Committee for Economic Development of Australia on 8 December and the imminent release of the FSI's final report.
ISA stated it had developed five recommendations for the final report that collectively "call for a plan to tackle conflicts of interest and under-performance of the financial system, and plotting a pathway to national prosperity by assisting retirement savings to play a larger role in the economy".
The five recommendations covered structural reforms to superannuation, vertical integration in retail financial advice and big end of town banking capacity and are as follows:
• Maximise the capacity of the superannuation system to deliver superior returns to members, protect the eight out of ten employees that don't choose their own fund, enable investment in infrastructure and boost economic growth by strengthening the default super safety net — a model endorsed by the Productivity Commission.
• Tackle the conflict-ridden, vertically integrated business models of the big banks, and confirm that financial advice must be in the best interests of the consumer.
• Help consumers and protect taxpayers by addressing the competition and "too-big-to-fail" issues in banking.
• Measure the efficiency of the financial sector so that it pulls its weight and doesn't become a drag on future growth.
• Consider structural reforms that could set superannuation on a pathway to a whole of life focus rather than product-centric solutions in the retirement phase.
The ISA stated the recommendations follow "two substantial contributions to the Inquiry on behalf of Industry SuperFunds" and appear to be a distillation of the submissions.
In its recommendations paper ISA stated that "vertical integration has resulted in conflict-ridden distribution of financial products, continuing allocations into high fee, low performing wealth products, expensive banking products, and undermined trust and confidence in financial services."
"The big banks have lobbied fiercely for a rollback of financial advice regulation and scrapping of the superannuation safety net so they can use market power in banking to cross sell super. If successful, more disastrous outcomes for consumers can be expected."
"The big banks have expanded into nearly all parts of finance, with a view to cross-selling financial products. These products would be distributed through financial advisers who are remunerated like salespeople."
The recommendations paper also stated that while the amendments to the Future of Financial Advice legislation have not proceeded the Inquiry should also "address other gaps in financial advice regulation" including higher professional standards and minimum educational requirements, a ban on life insurance and risk commissions and expanding banning powers for the Australian Securities and Investments Commission.
