Within the IFSA membership the 770 page Wallis report gathers no dust. It is often referred to when the industry is preparing position statements on the CLERP 6 process.
Take for example chapter seven which addresses conduct and disclosure. The Wallis review concluded that: “consumers need to compare product characteristics, costs, and expected rates of return if they are to make informed decisions. Disclosure statements need to be framed to make comparison possible”.
On disclosure of fees,
Within the IFSA membership the 770 page Wallis report gathers no dust. It is often referred to when the industry is preparing position statements on the CLERP 6 process.
Take for example chapter seven which addresses conduct and disclosure. The Wallis review concluded that: “consumers need to compare product characteristics, costs, and expected rates of return if they are to make informed decisions. Disclosure statements need to be framed to make comparison possible”.
On disclosure of fees, commissions, and adviser or broker remuneration, there was support for disclosure so that the consumer could decide on whether advice was skewed in favour of a particular product.
So it is not surprising the CLERP 6 papers have gone down this rather inclusive and harmonised disclosure track. For IFSA members this approach is also attractive. Harmonisation of the regulation of financial products, especially for those companies offering the full gamut of financial products, reaps significant cost savings. It also assists in adding to the store of expertise that consumers can bring to bear on a financial decision. It follows that more sophisticated consumers will purchase products that fit their actual needs. Furthermore, if they are more skilled and confident it is likely that they will be prepared to commit an increasing proportion of their income to those savings vehicles which incorporate optimal risk/return characteristics.
IFSA’s submission on CLERP 6 fully supports the proposal that product manufacturers should produce Financial Products Information Statement (FPIS) and that those giving advice should provide consumers with a Financial Services Guide (FSG).
The FSG would include a statement on the method and extent of all charges for the service being provided. The exact fees, charges and commissions will not, in many cases, be known until the discussion with the client has taken place and it has been determined the client will take any actions. It is therefore reasonable to conclude that only general disclosure of this information can be included in pre-printed materials, such as the FSG and the FPIS.
Consistent with the flow of information in the investment decision making process and in keeping with the know your client rule, IFSA is supportive of the next step in the process of documentation, the preparation of a record of advice. This would entail the formulation of an advice statement that would be held by the licencee as well as the authorised representative of the licencee, if the latter chooses to do so. This document could set out in firmer detail the applicable fees and charges.
The link in the product sale and advice process is the cooling off period provision. The IFSA submission proposes that all types of collective investment vehicles, life insurance, superannuation, Retirement Saving Accounts (RSAs) and managed investments should have the same cooling off rules applying to them. This is particularly important if the new regime is to permit cold or unsolicited courting of prospective financial services customers. The caveat to any cooling off provisions would be that the investor should not have the benefit of having protection from any adverse movements in investment prices during the period of their investment.
IFSA has taken a somewhat different view from the CERLP 6 proposals to cover point of sale disclosure. While we support the concept of an FPIS with the standardised checklist of product features, we have reservations on having life and superannuation disclosure being regulated under one regime and managed investment schemes operating under another. This can only lead to increased costs for financial institutions and greater confusion (and costs) for investors. So IFSA’s position is that the Government introduce a disclosure regime based on its Alternative A with the inclusion of unlisted managed investments. This would leave shares and other securities, including listed managed investments, to continue to operate under the general disclosure provisions of section 1022 of the Corporations Law.
These views have been presented to the Government both in IFSA’s CLERP submission and in subsequent meetings with the Government. We look forward to achieving outcomes consistent with the Wallis recommendations from these negotiations.
Richard Gilbert is the deputy chief executive officer of the Investment and Financial Services Association.
