In a submission to Treasury about the proposed amendments to the FOFA legislation, the FPA called on the government to “resist any commissions-based model of general advice used to generate sales of financial products”.
“The FPA strongly opposes commissions and volume-based payments from being permitted to be paid under general advice,” the FPA said.
The submission warned that the proposed changes to the general advice rules would incentivise financial advice firms to move away from providing personal advice.
“In effect, this proposal would be likely to promote a new stream of ‘general advice’ licensee businesses and sales advisers incentivised by sales commissions,” the association said.
The FPA stated its “grave concerns” that the draft regulatory statement on the proposed amendments to general advice has “overstated the consumer benefit of providing general advice, and significantly understated the risk of misselling”.
In particular, the FPA submission took exception to the draft regulatory impact statement’s assertion that general advice is “less likely to influence a person’s financial decision-making” because it “does not take into account the personal circumstances of the client”.
Such an assertion is contrary to research conducted by ASIC that indicates the strong role marketing information plays in investors’ decision-making, according to the FPA.
“If general advice does not persuade individuals to a decision, then there would be little incentive or basis for paying employees and licensees through conflicted remuneration on general advice,” stated the submission.
In the event that the government does decide to go ahead with the measure, the FPA recommends that conflicted remuneration on general advice be banned within superannuation, complex products and where the resulting benefits represent more than 10 per cent of an employee’s remuneration, the FPA said.
The government should also “clearly define” commissions as a type of banned conflicted remuneration on general and personal advice, the submission said.
