The Financial Planning Association (FPA) has directly attacked the continuing Future of Financial Advice (FOFA) exemptions for general advice, arguing that the carve-outs are frequently being breached including with respect to the sale of annuities.
The FPA has used its submission to the Productivity Commission (PC) inquiry into competition in the Australian financial system to argue that the general advice exemptions had resulted in a significant reduction in consumer protection “with instances of personal advice being provided under the guise of general advice”.
“These exemptions are only meant to apply with regard to the provision of factual information and not ‘advice’,” the submission said. “Sometimes this can be a very fine line and there are many cases when the factual information given is definitely trying to influence the client to take action to invest in a product.”
“For example, financial planners have seen instances where annuities (for large sums of money) have been ‘sold’ to consumers for effectively 90-100 per cent of a client’s portfolio that was otherwise to be held in term deposit style investments, with minimal advice provided,” it said.
“Products are being sold as a ‘basic product’ with commissions still being paid. However, annuities are not simple financial products and should only be recommended if they are in the best interest of the client via personal financial advice. They should not be ‘sold’ to consumers.”
The submission said the FPA questioned whether the exemptions from the best interests obligations and conflicted remuneration provisions afforded to certain advice providers and types of advice, were exacerbating the risk of mis-selling for consumers.
“It is unquestionable that the carve-outs have created a noticeable competitive disadvantage for advice models doing the right thing and adhering to all the legal and consumer protection requirements,” it said. “These regulatory exemptions make ‘personal’ financial advice less competitive. Regardless of the legal boundaries of personal and general advice definitions, it is the consumers’ interpretation of the advice that ultimately determines whether they are being provided general product facts or information that relates to their own circumstances.”
The FPA submission said the anecdotal evidence had shown that it was common for individuals to interpret general advice as personal advice because it is relevant to their circumstances at the time it is provided.
“This is where incentives to sell products can result in misleading consumers,” it said.