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Industry Super Australia (ISA)

Damning ASIC report confirms Australians need more consumer protection and stronger FoFA laws

Damning ASIC report confirms Australians need more consumer protection and stronger FoFA laws

Today’s release of ASIC’s damning review into life insurance advice provides the clearest evidence yet as to why FoFA laws should be further strengthened and not weakened.

“ASIC’s review highlights “an unacceptable level of failure” by sales-driven financial advisers offering inappropriate advice that does not put the best interest of consumers first,” said ISA Chief Executive David Whiteley.  

The report detailed:

·       more than a third of advice (37 per cent) did not meet the laws relating to appropriate advice, a result that ASIC describes as an ‘unacceptable level of failure’;

·       a staggering 96% of advice which failed paid upfront commissions, compared to alternative payment structures;

·       instances of advisers earning up front commissions in excess of $18,000 and premiums that completely eroded the client’s own super contributions;

·       inappropriate scoping of advice to exclude circumstances which would have reasonably lead to lower levels of cover (and commissions for advisers)

“The report confirms there is a systemic failure which should ring serious alarm bells for our law makers. There is now a clear pattern demonstrating that sales-based advice is costing consumers dearly,” said Mr Whiteley.

“Life insurance, like superannuation, is a major investment that people make to protect their livelihoods and families. The community is right to be dismayed by the removal of consumer protections at the same time as the financial advice industry is mired in scandal.

“Following this report, it is beyond belief that anyone would persist with the newly created FoFA loopholes which permit front end loaded sales incentives, bonus structures, and commissions on execution services on simple and complex financial products alike.

“If anything the report suggests that the original FoFA laws did not go far enough. While advice outcomes improved post FoFA (the ‘pass’ rate increased from 59% to 67%), a failure rate of one in three pieces of advice post FoFA is completely unacceptable.”

The report not only exposes the detrimental outcomes for consumers arising from sales based advice but also clearly points to the risks that will arise from the changes to the Best Interest Duty, and scoping of advice including the inadequacy of S 961J to protect clients’ interests.

“The only logical response to this report is to extend the ban on commissions to include those paid on individual risk policies inside and outside super, and to withdraw from parliament the wind-back of FoFA until at least after the Financial System Inquiry has issued its final report,” Mr Whiteley concluded.

For further information, please contact Phil Davey 0414 867 188