Consumer groups, super funds and unions urge Government to ban commissions for financial planners

The pressure on the Government to reform the financial planning sector in the wake of the collapse of Storm Financial is increasing, with a group made up of representatives of the union movement, the industry super funds sector and consumer groups urging the Federal Government to ban commissions paid to financial planners.

The Federal Parliamentary Joint Committee on Corporations and Financial Services is currently conducting an inquiry into financial products and services in Australia, sparked by the collapse of Storm Financial and the loss of billions of dollars by its clients.

The issue of commissions has dominated the submissions to the inquiry and the public hearings, with a number of experts suggesting that paying financial planners a commission creates the potential for conflicts of interest.

In major newspapers around Australia this morning, a coalition including the Industry Super Network, Australian Council of Trade Unions, consumer advocacy group Choice, the Australian Council of Social Service and the Australian Institute of Superannuation Trustees, have taken out full page advertisements calling for commissions to be banned.

“[Commissions] and other percentage-based fees constitute an impossible conflict of interest for these financial planners and can encourage them to recommend risky, highly-leveraged investment strategies,” the coalition writes in an open letter to the Parliamentary Inquiry.

“Commissions also add up to make financial advice more expensive than it should be. For the three years to 31 December 2008, commissions paid on superannuation totalled over $5.3 billion – and that could leave millions of Australian with tens of thousands of dollars less for their retirement.”

But it remains to be seen whether the Parliamentary Committee will actually come down in favour of banning commissions.

Committee chairman, Labor MP Bernie Ripoll, acknowledged the depth of feeling on the issue in an interview with ABC television on Sunday, but stopped well short of endorsing a ban.
“I actually think that quality of advice really has turned out to be the most important part [in the inquiry]. Certainly the way it’s paid for and the link between product manufacturers and sales people and advisers and ultimately the client are exceptionally important how the client pays for those services and products. But in the end the quality of advice is what’s critical, not so much how much you pay for that advice.”

Ripoll also appeared to distance himself from the proposal that the term “financial planner” be redefined such that only those planners who do not accept commission be allowed to use the term.

“It’s something we’re looking at. I think the important question here is not so much what you call yourself, because that in itself can be quite confusing, but on the quality of advice you provide, on the advice that you’re entitled to provide, and to ensure that it’s appropriate and tailored individually for that particular person you’re advising.”