The recommendations made by the Investment and Financial Services Association represent “a half hearted solution” to addressing conflict of interest issues, according to an analyst report from Merrill Lynch.
The report said while the recommendations were “commendable” in terms of promoting member choice for payment options, the analysts were “not convinced this will meaningfully address conflict of interest issues across the retail industry, particularly given the proposals only relate to new business and continue to allow asset-based fees”.
“As such, we see this as a half hearted solution,” the report said.
The analysts believe the changes pose a significant risk to companies, including AMP, AXA and IOOF.
The report questions whether an asset-based fee is really that different from commission payments.
“When MLC introduced this same fee model in 2006, most retail competitors argued they were splitting hairs, that it wasn’t a real fee-for-service but a commission masquerading as a fee. It is therefore amusing to see the industry now propose this as a valid solution.”
The analysts also questioned the need for superannuation advice for lower income earners and younger members.
“In our view, the onus should be on the planning industry to evolve and provide simpler low cost advice solutions to these members rather than allowing potential conflict of interest issues to persist.”
The analysts also believe that with all retail super players needing to launch new unbundled fee products over the coming year, “price competition is likely to rise considerably”.
