Big banks back overhaul of advice industry but baulk at funding compo

Banking and Finance

Date December 14, 2014 - 3:33PM

Clancy Yeates

After a year of turmoil in financial advice, big banks are supporting the creation of a public adviser register, more disclosure of licence ownership, and tighter rules on who can call themselves an adviser.

Yet the industry is at odds with the Financial Ombudsman Service over its call for a industry-funded "last resort" compensation scheme for victims of bad advice.

New submissions from the Commonwealth Bank, Westpac, Macquarie Group and AMP support the government's plan to give consumers more information about an adviser's history including any bans, their qualifications, and the company that is employing them.

The submissions have been made to a Senate committee investigating the level of consumer protection for financial advice clients, an issue that has come to the fore after the government's move to roll back Labor's advice laws was abruptly scuttled in the Senate last month.

The three banks and AMP backed the Coalition's plan to start a public industry-wide register of advisers by March 2015. The register is also intended to give consumers clearer information about the licence holder, such as a bank, for which the adviser is ultimately working.

Most banks also agree there is a need for clearer descriptions of what constitutes "advice", as opposed to sales.  Westpac and CBA both argue that people providing "general advice", which does not take into account a customer's circumstances, should not be able to call themselves financial advisers.

The financial system inquiry chaired by former CBA chief David Murray also recommended this change, saying there was currently a risk that consumers misinterpreted or relied excessively on material that was in fact advertising.

The debate over consumer protection comes after CBA and Macquarie were forced to expand compensation schemes for victims of bad advice this year.

CBA is offering to review any advice provided by Commonwealth Financial Planning or Financial Wisdom between 2003 and 2012, while Macquarie has been forced to write to 160,000 current and former clients of its Macquarie Private Wealth inviting them to participate in a compensation scheme.

But despite efforts such as these, the Financial Ombudsman Service said compensation for consumers who have lost money through bad advice was a "pressing issue" and there remains a significant gap in the law.

Since 2010, FOS has ordered $12.5 million in compensation that has not been paid to customers, as the companies involved had collapsed or no longer had financial services licences. To address the issue it argued that all licensees should be charged a fee to fund a last resort compensation scheme.  "Consumers must have confidence that if things go wrong, they will be compensated when a decision is made in their favour," the FOS submission says.

The industry, however, is pushing back against any new mandatory compensation scheme.

A submission from the Financial Services Council, which represents for-profit wealth managers, cited a 2012 government-commissioned report that said a last resort compensation scheme would be "inappropriate, and possibly counter-productive" and would not lift standards in the industry.

The Senate inquiry comes as financial advice laws remain politically controversial.  Opposition and crossbench senators calling themselves the "coalition of common sense" last month scrapped the government's rollback of Labor's financial advice laws, citing concerns consumers were being left worse off.


It is unclear whether the government will try to reach a compromise with the senators, some of whom, such as Labor's Sam Dastyari and independent Nick Xenophon, are involved in the current inquiry.