Consumers should not be allowed to stop an outdated financial product from being shut down, according to the financial services industry’s peak body.
The Investment and Financial Services Association (IFSA) has written to the Federal Government to support Treasurer Peter Costello’s plans to rid the industry of thousands of older-style legacy products.
IFSA wants product manufacturers to have the freedom to rationalise legacy products – those closed to new investment – and move members into more modern ones.
Currently, many legacy products – estimated to be worth more than $221 billion – can only be rationalised if all members of the scheme agree.
“Experience has shown that in the absence of compulsory transfer, it is unlikely that product rationalisation can occur,” IFSA said.
“Without compulsion an individual or small group could effectively prevent the rationalisation of a financial product contrary to the interests as a whole of that class of customer holding the product.”
The Government’s simpler regulatory package would roll over legacy products in the life insurance, managed funds and superannuation sectors through a single statutory mechanism.
Investors in the products are often aged over 50 and resist moving due to the complexity involved and high exit fees.
Since the 1980s there has been a significant increase in the products, which tend to operate on obsolete computer systems.
IFSA said legislation should allow consumers to receive at least the same benefits in the new product as they did with the old.
It recommends that external disputes resolution schemes be used to process consumer complaints.
“We support a right of complaint and a right to seek compensation, but not a right of objection,” the association said.
Consumers should have a right to exit the financial product before it was rolled over, it said.
