Australia shows 'what not to do'

David Boyle, investor education group manager at the Commission for Financial Capability has returned from a forum in Australia where the country’s industry challenges were discussed.

He said Australia was dealing with the question of how quality advice could be delivered in a cost effective way that was transparent and appropriate for consumers. “I hope we can learn from their challenges.”

The Australian industry is reeling after revelations of substandard advice and mis-selling costing consumers billions in losses.

There have been a number of reports recommending widespread changes, including to commission structures, bank funding, superannuation scheme fees and retirees' access to their super lump sums.

Boyle said New Zealand would be able to be more proactive than Australia had been. It has been more than two decades since that country introduced compulsory super.

The Financial Advisers Act review, beginning this year, was an opportunity to join the dots in New Zealand, he said. “There are some good lessons we can learn from Australia in what not to do. Sometimes that’s a great place to start.”

New Zealand financial advisers were operating in an environment of clean regulation and products, he said. “It’s not too complicated. We should put regulation in where there is a better outcome for the consumer. You don’t want to be in the position where you change the environment and politicians make it more complicated for people to understand what to do. In Australia, it’s bloody complicated.”

Financial advisers in Australia have felt heat as greater regulation is proposed for them.

A register has been introduced and commission is also under scrutiny: Australian Prudential Regulation Authority member John Trowbridge has suggested advisers who sell life insurance should only be able to earn $1200 in upfront commissions. Regulator ASIC found one in three clients focused more on commission than servicing their clients.

Boyle said New Zealand advisers did not need to be worried by what was happening to their counterparts across the Tasman.

"There it does highlight a bit of a systemic issue. I don’t think we have that in New Zealand yet. The Financial Advisers Act review should mean a good robust discussion and it’s a good time to do that.”

Comments from our readers

On 13 April 2015 at 7:56 am Pragmatic said:

The major challenge with the Australian asset gathering industry is that it is structurally corrupt (a legacy from the past 3 decades). This has been discovered by the consumer, who are now voting with their feet - with over $520bn now in SMSFs. Unfortunately the Australian industry continues to fail to recognise that the only remedy is to put the consumer's interests ahead of their own.

On 13 April 2015 at 11:38 pm dcwhyte said:

The cost of mis-selling does not run to "billions" in Australia - this is a gross exaggeration and entirely inaccurate.

There has certainly been inappropriate investment advice identified which has not served the investment consumers' best interests, but there is no evidence to suggest that "billions" of dollars are involved.

There has also been research which suggests risk product mis-selling. However, there are serious questions around the integrity of the risk advice research, but leaving that to one side, the advisory industry has taken the implications in the report on board and is looking at practical ways to address the issue.

The Trowbridge Report is a blatant response to political pressure, and, if implemented, will cause untold damage to the industry and to the Australian community at large.

This is not to suggest unlimited compensation structures for advisers - but it is most certainly to suggest that the market be left to find the level that is acceptable - based on full disclosure and uniform standards of adviser responsibilities to clients.

Of course, in Australia and NZ, vertically integrated organisations (those who both provide and distribute products) would welcome the demolition of the non-aligned advisory industry as it removes an irritating source of competition. But it also deprives the consumer of choice.

The proposal in the Trowbridge Report is to pay 20% level commission and, in addition, have a 'one-off' advice fee capped at $1200.

Unfortunately, there are some Australian product providers which have been royally supported by non-aligned advisers, and have much to be grateful for, that are dithering around with corporate spin-doctored bovine scatology.

They should stand up and be counted in the face of political populism and support those who have supported them.

While I agree that adviser should not be worried about events across the Tasman, don't think for a minute that the FMA is unaware of the controversy, and has already expressed concerns around mis-selling of Kiwisaver and insurance products in its Strategic Risk Outlook 2015 document.

If anything, the populist reaction in Australia highlights the need for the NZ Advisory Industry and its representative associations to ensure a united and co-ordinated submission to sort out the many anomalies in the FAA.

On 14 April 2015 at 12:11 pm Murray Weatherston said:

Headline is misleading - it says Australia shows "what not to do".

But nowhere in the text is the what not to do specified. I would love to see a list of the things we shouldn't do.

Please!!!!!

On 15 April 2015 at 1:34 pm dcwhyte said:

1. Don't do a "Trowbridge"
2. Don't accept unfounded research conclusions
3. Don't submit to 'knee-jerk' populist vote-catching measures from politicians with nothing on their agenda except the rentention of office.
4.Don't ignore stakeholders' views when framing/reviewing legislation and regulation.
5. Don't permit submissions to investigative bodies to be kept secret.
6. Don't insist on presentng fragemented views from the advisory sector to officialdom.
Just a few to be going on with, Murray.

Australia shows 'what not to do'

New Zealand’s financial services sector can learn what not to do from Australia, it has been claimed.

Monday, April 13th 2015, 6:00AM 4 Comments

Comments from our readers

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