Australia’s pool of Superannuation funds sat at around $1.6 trillion according to Deloitte in a report released last September. This pool of savings, already the 4th biggest in the world, is projected to grow to $4 trillion in the next 10 years and $7.6 trillion by 2033.
So it is no surprise that this mountain of cash has attracted its share of rogue operators as the fallout from the GFC showed.
Governments and oppositions alike are, as a result, focused on trying to get the best outcomes possible for the members of superannuation funds and clients of financial planners, and others, when it comes to the investment of these and non-superannuation investments.
Professional standards in the financial planning industry are under the microscope as a result. They’re being raised by the Financial Planning Association (FPA), and the Future of Financial Advice (FoFA) reforms proposed under the federal Labor government go a long way to enforcing this renewed push for professionalism in the industry.
In general it seems to be working: Matthew Rowe, Chairman of the Financial Planning Association wrote recently that standards needed to lift in the industry to raise it up to the status of a profession, with minimum University education standards and qualification requirements as with other disciplines such as accounting.
But the federal government’s current efforts to cut red tape are going too far according to Rowe, who says the push by banks to have commissions reinstated on products which fall into the “general advice” or “no-advice” bucket could hurt those who need advice most.
In a veiled reference to the major banks, which also own fund management houses, Rowe says the push for the reinstatement of commissions on these products “is an attempt by some product manufacturers to drive the sale of their product through integrated distribution without the obligation to investigate the needs of the consumer or provide a solution that is in the consumers best interests.”
FOFA puts an obligation for Financial Planners and others who “sell” investment products to put the client first and to know their client, their needs, their income, their obligations, their risk tolerance and so on.
“No-advice” products don’t allow for that because as it says on the box, no advice is given.
Leaving aside the issue of commissions or vertical integration between the manufacturer of the product and the seller of the product in the bank or other “sales point” the question has to be asked as to why no-advice products exist at all.
Matthew Rowe told Business Insider these products were usually “lower dollar value investments” which suggests these might be the very people who should be protected by regulation, based on ANZ research quoted in Rowe’s article today.
ANZ’s surveys of adult financial literacy in Australia show that there are some groups where lower levels of financial literacy are more likely to be encountered: people who are relatively young (under 25 years); people with no formal post-secondary education; people with relatively low levels of income and assets (such as those whose main source of income is a government benefit or allowance; those with annual household incomes below $25,000; those with less than $2,000 in savings and investments); and those working in lower blue collar occupations; and females.
Lower paid, smaller amounts to invest, a lack of financial literacy and a no-advice get-out clause seems like a dangerous cocktail.