AIOFP sends warning to politicians against institutional advice

In an email to members of Parliament, Association of Independently Owned Financial Professionals (AIOFP) executive director Peter Johnston said that the legal action is yet another reason that institutions “should never be allowed to participate in the financial advice space again”.

Last week, the Federal Court heard MLC members were charged fees and premiums to their superannuation accounts between 1 July 2016 and 23 September 2020 to fund the commissions “given in full” to financial services licensees.

Counsel for the group members said the commissions “came with no requirement for advisers to do anything” in exchange.

The class action has been brought against NULIS Nominees, a trustee for the MLC Super Fund. Until its sale to IOOF Holdings in May 2021, MLC existed under National Australia Bank (NAB).

In this ownership context, NULIS allegedly “ripped out” $165 million from members and only stopped a few months short of a “hard ban” introduced in the January 2021 legislature.

In an example provided to the court, NULIS charged a “contribution fee” which was “not a fee for any work or effort by NULIS in the administration or operation” of the superannuation fund.

Writing to MPs on Monday morning, Mr Johnston said: “It should also be noted that this blatant ‘extortion’ from consumer savings was carried out by institutional management teams (NOT financial advisers) where they are paid generous bonuses for the profitability of their divisions, a clear conflict with the best interests of consumers and it can be argued it is just another form of product-related commission which was banned under FOFA in 2012.

“The irony of this unpalatable conduct are consumers have been paying twice in the past, once to the institutions for their deceit and then again with higher advice fees imposed post-royal commission when commissioner Hayne recommended additional compliance measures to counter this institutional conduct in his final report.

“Ridiculous consent forms and other repetitive and unnecessary paperwork has doubled the cost of compliance over the past seven years and consumers are paying for it.”

Mr Johnston added that adding to the “insult” was that most of the institutions have left the advice industry “in disgrace”, yet the measures to end these practices are still in place.

“Unfortunately for consumers and financial advisers, the distinction between advice and product manufacturing has been constantly confused by politicians and bureaucrats where historically, advisers have been unfairly blamed for the actions of others allowing the real perpetrators to avoid accountability,” he said.

“We are pleased that Canberra is now differentiating and understanding the nuances between the role financial advisers and product manufacturers play in the industry and why institutions should be forever banned from offering professional advice to consumers.”

Adding that he believes this is separate to the government’s current push to allow super funds to have internal staff trained to give internal product and related information to consumers without being licensed, Mr Johnston said the AIOFP “agree with this direction”.

“We, however, vehemently disagree with the QAR recommendation that the best interests duty should be replaced with a ‘good advice’ concept which allows institutions back into giving consumer advice despite their profoundly conflicted vertically integrated business models,” he said.

“This is a very bad outcome for consumers in our view. Poor historical data supports our view.”