Planner ‘loophole’ fear
New laws means consumers are protected
PEOPLE who buy products from financial planners will not be adequately protected after legislation before parliament has been watered down, consumer advocates say.
The draft of the new laws effectively means consumers would be protected if they purchased financial products — such as insurance, superannuation, managed funds and bank accounts — directly from a financial institution without receiving financial advice.
However, it has been revealed, consumers would not be protected if they were to buy the same product through a financial planner.
Consumer advocates fear this will simply create a loophole to allow inappropriate products to be sold through financial adviser channels.
The proposal is at odds with recommendations from the Financial System Inquiry led by David Murray in 2016.
“We have serious concerns that products could be widely distributed to the wrong target markets because of these loopholes, which could cause widespread harm,” Consumer Action Law Centre senior policy officer Katherine Temple said. The clock is ticking on any further amendments, as the Bill has been referred to the Economics Legislation Committee, which is due to report by November 9.
The Financial Planning Association has argued personal advice is already sufficiently regulated.
The laws have been watered down despite the banking royal commission exposing scandals in the sector and current regulations failing. Goodstart chief executive Julia Davison says the company has bucked industry trends and lifted occupancy levels
The new laws — Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018 — are intended to ensure consumers are better protected from unsuitable financial products, although they also exclude credit products, including credit cards, home loans and business loans.
Lawyers for victims of some of the misconduct cases examined during the royal commission said the proposed changes needed to apply broadly across financial services and credit if they were to have any impact.
“We do not support exclusions from the new laws, given that some of our biggest financial scandals have resulted from poor advice and bad lending practices exacerbated by weaknesses in product distribution and design,” Ms Temple said.