ABA Review on commissions and payments in retail banking

Transcription

1 ABA Review on commissions and payments in retail banking ISA SUBMISSION 9 September 2016

2 ABOUT INDUSTRY SUPER AUSTRALIA Industry Super Australia (ISA) is an umbrella organisation for the industry super movement. ISA manages collective projects on behalf of a number of Industry SuperFunds with the objective of maximising the retirement savings of five million industry super members. Please direct questions and comments to: Robbie Campo Deputy Chief Executive rcampo@industrysuper.com Ailsa Goodwin Senior Manager Regulatory Policy agoodwin@industrysuper.com Lygia Engert Policy Analyst lengert@industrysuper.com ISA Pty Ltd ABN Corporate Authorised Representative No of Industry Fund Services Ltd ABN AFSL

3 CONTENTS Contents CONTENTS ii 1. Overview of problem 3 2. Response to terms of reference Scope of review excludes cross-selling by bank staff Scope of the review excludes bank bundling of super Scope of review excludes life insurance commissions Scope of review excludes FoFA compliant business models Customer outcomes 12

4 EXECUTIVE SUMMARY Key points The review is a positive step in identifying the prevalence of commissions and product-based payments in retail banking, and developing recommendations to eliminate conflicted remuneration and re-aligning remuneration and customer outcomes The limited focus of the review prevents the examination of key areas where conflicted remuneration has resulted in unethical behaviour by the banks and poor outcomes for consumers ISA welcomes the opportunity to comment on the ABA s independent review of product sales commissions and product-based payments in retail banking. ISA undertakes research, advocacy and policy development on behalf of 15 of Australia s largest Industry Super Funds and has actively advocated against conflicted forms of remuneration in the sale of or the provision of advice on superannuation products. Any practice that erodes the retirement savings of the millions of Australians whose super is held in a fund owned by a bank detracts from the sustainability and efficiency of Australia's retirement system. ISA is increasingly concerned that the lack of community trust and confidence in the banks could reduce public confidence in our compulsory super system. We commend the ABA for initiating a review of commissions, however we are concerned that the review excludes from its scope the very areas where there have been ongoing scandals that have resulted in significant detriment for consumers. These areas include life insurance commissions, conflicted remuneration where permitted by FoFA, the practice of banks bundling super with business banking products, balanced scorecard arrangements and cross-selling superannuation products to consumers. Restoring confidence in the banking system will require bold and decisive change that demonstrates a greater priority towards customers. To this end, ISA recommends the cessation of the payment of all sales commissions on investment and insurance products, including currently grandfathered commissions, by 1 January Given the ABA s overarching commitment to addressing the adverse impact of commissions on consumers, ISA believes that it is fundamental to broaden the scope of the review to capture those areas where evidence shows that consumers are most adversely impacted. This will provide the ABA with an opportunity to create a clear signal to the market and consumers of a shift in practice and culture. 1

5 Figure 1 Summary of Recommendations Issue Recommendation for review Policy solution Scope of review excludes cross-selling by bank staff Scope of review excludes bank bundling of super Scope of review excludes life insurance commissions Review should examine remuneration structures for retail bank staff who switch customers into their own bank s superannuation products Review should examine the use of incentives to persuade employers to switch to bank owned default superannuation Review should make recommendations for industry-led reform to align remuneration structures for life insurance with consumer outcomes. Cross-selling or up-selling of bank customers out of default super into a bank owned non-mysuper super product should be regulated to ensure that banks cannot leave customers who leave the default safety net worse off. The cross-selling or up-selling of super be subject to a "better off" test. Reforms to the current prohibition to ensure that it is effective, including the introduction of civil penalties for breaches of the bank bundling prohibition in the SIS Act, consistent with other sections of the SIS Act. Reforms to eliminate life insurance commissions. Scope of review excludes commissions that are allowed under FoFA Review should cover conflicted remuneration structures for advice permitted under FoFA Working towards a ban on the payment of all sales commissions on investment and insurance products, including currently grandfathered commissions, by 1 January Customer outcomes ISA cautions against measuring the banks performance through customer surveys. Innovative disclosure that leverages the evidence from behavioural economics and is thoroughly consumer tested. For example, inclusion of a visual comparator on member statements that shows how a member s outcome compares against a high-performing industry benchmark. 2

6 1. Overview of problem Over the past decade, Australia has seen a series of mis-selling scandals in which banking customers have suffered significant losses. At the centre of many of these scandals has been conflicted remuneration, where commissions and other incentives have encouraged planners to recommend certain products that are not in the client s best interest. Despite the FoFA reforms, exempted and grandfathered commissions remain widely available as a remuneration structure in the financial advice industry. Many of these arrangements are a feature of vertically integrated product and advice businesses. With an estimated 85 per cent of financial advisers associated with a product issuer 1 and nearly all the largest dealer groups now owned by the financial institutions, there remains a potential conflict between a financial planner s commitment to that product manufacturer and the requirement to act in their client s best interests. The institutional ownership of the bulk of financial planning dealerships is significant because it reinforces the concern that financial advisers are compromised by the commercial imperative of selling and distributing the products manufactured by their parent or related party organisations. The detrimental impact of commissions on advice was recognised by the Interim Report of the Financial System Inquiry which found: Accessibility of advice that helps consumers meet their financial needs is undermined by the existence of conflicted remuneration structures in financial advice Conflicts of interest have been a longstanding issue in financial advice and retail investment failures following the Global Financial Crisis, including high-profile cases such as Storm and Trio, highlight concerns with financial advice regulation The tension between providing financial advice for the benefit of consumers and playing a product distribution role is one of the main areas of conflict The Final Report of the Financial System Inquiry (FSI) released in November 2014 further quantified the impact of poor advice and conflicted remuneration: Previous collapses involving poor advice, information imbalances and exploitation of consumer behavioural biases have affected more than 80,000 consumers, with losses totalling more than $5 billion, or $4 billion after compensation and liquidator recoveries. 2 The FSI s estimate of losses resulting from poor quality advice does not include subsequent advice scandals at Macquarie Bank, Commonwealth Financial Planning, NAB and ANZ. The triggers for the current review have been an ongoing series of regulatory issues which have impacted consumers including trading breaches, financial advice scandals, scrutiny of insurance practices and sales, and the vertically integrated model that enables banks to both manufacture and sell products through multiple channels. Breach reporting by ASIC has resulted in media scrutiny focussed on the culture and ethics of the banks, including prioritising shareholders over customers, poor compliance, failure to provide advice in the client s best interests, unnecessary switching of superannuation products and misleading and deceptive behaviour. Despite the evidence documenting the ill-effects of commissions and product driven sales in retail banking, there continue to be a number of exemptions and carveouts which encompass all divisions. ISA urges the 1 IBIS World Industry Report, Financial Planning and Investment Advice in Australia: K7515, May 2009, p 7 2 Financial System Inquiry, Final Report, 2014, p 28 3

7 review to consider the areas which have been excluded from the scope but which if left unattended will compromise its outcomes. 2. Response to terms of reference As noted in Section 1, the narrow focus of the review prevents the examination of key areas where conflicted remuneration has resulted in a questioning of bank ethics and poor outcomes for consumers. This section highlights areas that we believe require examination by the review and makes recommendations to assist the reviewer in undertaking this examination. 2.1 Scope of review excludes cross-selling by bank staff Issue: The purpose of the review is to examine whether remuneration structures align with customer outcomes, yet it is limited to the sale, offer and distribution of retail banking products. This precludes the reviewer from examining the impact of the payment of conflicted remuneration by those working in retail banking roles for cross- selling superannuation products. Recommendations: The review should examine remuneration structures for retail banks staff who switch customers into bank superannuation products, whether this could lead to poor consumer outcomes, and options for reform. Cross-selling or up-selling of bank customers out of default super into a bank owned super product should be regulated to ensure that banks cannot leave customers, who leave the default safety net worse off. Banks should also be prohibited from offering incentives outside super to encourage customers to leave the default safety net. ISA proposes that the cross-selling or up-selling of super be subject to a "better off" test Impact of cross-selling by bank staff Anecdotal evidence from ISFs suggests that banks cross-selling superannuation alongside other products to consumers is widespread. The vertically-integrated model of distribution prevalent in the retail sector, has created a situation whereby products distributed through general advice or no advice channels may not be in a customer s best interests. Under the current law, banks can cross-sell financial products via general advice without any requirement to ensure that the product is appropriate or in the customer s interests. Consumer protections in general advice are considerably lower than in personal advice. Sellers are not bound by an obligation to act in their client s best interests and may therefore sell a product that is unsuitable or detrimental to consumers. Despite FoFa s ban on conflicted remuneration, in the general advice environment, conflicted remuneration continues to be permitted in the form of balanced scorecards, which include a component for revenue generated, to remunerate staff. For example, a number of banks reward tellers for measures which include revenue generated from wealth/ superannuation under a general advice model. 3 Data suggests that since the 3 Despite FoFa s selective ban on commissions and conflicted remuneration, commissions and other forms of conflicted remuneration continue to be permitted for general advice in certain circumstances 4

8 introduction of FoFA there appears to be changes in the distribution of superannuation products, from traditional adviser channels to over the counter sales by bank staff. Figure 2 Increase in distribution driving switching to a major bank fund % of those who switched super fund manager in the last 12 months who sought advice from the financial institution directly Period to Dec 2010 starts in January 2006, period to Dec 2014 starts in Jan 2011 ANZ CBA NAB WBC Period to Dec Period to Dec % Change Source: Roy Morgan Superannuation and Wealth in Australia, May 2015 and Roy Morgan Superannuation and Wealth in Australia, May 2015 A typical scenario is a bank offering a customer incentives such as a discount on home loan interest rates, reduced fees or insurance upgrades to encourage the customer to switch to a choice superannuation product affiliated with the bank. The practice of bundling a range of products as a package deal is particularly problematic in relation to compulsory superannuation, where consumers are often not aware of the potential impact of switching from one fund to another on their retirement savings over the long term. The weak protections around cross-selling may lead to unnecessary switching of superannuation products by consumers. Long-term, independent performance data suggests that typically consumers who switch from a default fund to a choice option are worse off in other words, this practice is misaligned with customer outcomes. The ill effects of switching are highlighted in ASIC s recent banning of a bank aligned financial adviser from providing financial services for six years, for recommending clients switch to a different superannuation product in circumstances where it was not in the best interests of clients. 4 While this was in the personal advice environment, it illustrates how incentives may incentivise product sales and advice. ASIC s investigation found that in a number of instances the adviser had recommended clients switch to a different superannuation product in circumstances where there was little benefit but significant additional cost to the client in switching. On the other hand, the switching advice benefited the adviser through increased adviser fees. In doing so, ASIC found that the adviser had: failed to act in the best interests of his clients, by giving them advice that may leave the clients in a worse position than if they had not followed his advice failed to accurately disclose the fees associated with the advice failed to put the interests of his clients ahead of his own interests when he knew that there was a conflict between his and the client s interests 4 5

9 failed to provide sufficient information to clients about the charges associated with the switching of their financial products. As long as banks are permitted to receive conflicted remuneration for switching recommendations, poor quality switching advice will continue to be a feature of the banking industry. The best interests duty only applies to personal advice and is enforced by the regulator after-the-fact, on a case-by-case basis. As a result, it is insufficient to overcome structural problems with conflicted cross-selling using general advice and no advice models Current treatment of cross-selling by bank staff It is common for banks to use so-called balanced scorecards to remunerate staff. These tools frequently include one or more criteria which rewards a staff member for selling a volume or value of a particular product (volume-based criteria). Some stakeholders have argued that balanced scorecards do not promote incentivised sales as they also include other criteria (for example: complying with the law, meeting the employer s compliance policies and client satisfaction) that are not tied to product sales. However the litany of scandals involving conflicted remuneration would suggest that any type of benchmarking where an employee s remuneration is linked to sales has the potential to undermine advice. There is no transparency of these arrangements and no effective disclosure to customers about these scorecards. While ISA has always opposed the exemption for balanced scorecards, at the very least there should be transparency. Cross-selling or up-selling of bank customers out of default super into a bank owned super product should be regulated to ensure that banks cannot leave customers who leave the default safety net worse off. Banks should also be prohibited from offering incentives outside super to encourage customers to leave the default safety net. One policy solution is that the cross-selling or up-selling of super be subject to a "better off" test. A betteroff test would require the product provider to demonstrate that when a member switches into a choice product, that product will not leave the consumer worse-off compared to a default fund benchmark. It would also ban outside-super bundling or incentives to consumers to motivate them to switch. 2.2 Scope of the review excludes bank bundling of super Issue: The scope of the review does not allow for examination of practice of banks offering businesses incentives to switch their default superannuation arrangements to the bank. While technically this is not permitted, in practice the law is unenforceable and therefore ineffective. Recommendation The review should examine the use of incentives to persuade employers to switch to bank owned default superannuation, whether this could result in poor consumer outcomes and identify options for reform. The review should also consider recommending civil penalties for breaches of the bank bundling prohibition in the SIS Act to ensure that regulators are properly equipped to keep financial institutions accountable Impact of bank bundling in super Bank bundling is the practice of banks offering employers incentives to switch their default super provider to one that is run by the bank. 6

10 Research undertaken by UMR in 2015 provides evidence that banks are actively promoting their house brand super funds to their Small Medium Enterprise employer customers. Given most employees still tend to go with default funds rather than actively choosing their own funds, bank bundling can affect superannuation outcomes for many Australians. The UMR research found that: 26 per cent of employers surveyed said that a major bank had approached them about transferring their employees default superannuation to the bank s own retail super fund in the last year Just under half those approached say their bank offered them benefits to change funds The most common offers made by the banks involved a direct benefit to the business rather than employees, such as discounts on business banking and insurance products Some employers report being offered tickets to sporting events 33% of employers offered benefits say they were persuaded to switch to a super fund promoted by their bank, and many more (57%) report that they are still considering switching As with cross-selling super to consumers, the concern with bank bundling is that it may result in an employer choosing a fund that is not in the best interest of their employees In 2012 the Productivity Commission recognised that small and medium sized employers especially would be unlikely to possess the interest and expertise to choose a fund that best meets the interests of their employees given the administrative appeal of consolidating their business with one bank. The Commission accepts (that there are laws which prohibit inducements being offered to employers on the condition that employees join a particular fund) but recognises that there is no requirement for inducements to be overtly offered for conflict of interest concerns to emerge. For example, even without prompting from financial institutions, employers might wish to consolidate their business (including employee superannuation) with one particular institution. This might be administratively simpler for employers, but not necessarily be in the best interests of employees Current treatment of bundling Australia s consumer protection laws (Competition and Consumer Act 2010 (Cth)) outlaw third line forcing, where a company supplies goods or services including discounts on conditions that restrict the buyer's freedom to choose with whom, in what or where they deal. When it was established in the mid-1990s, Australia s compulsory superannuation system recognised that third line forcing by banks was a risk, setting out clear rules in Section 68A of the Superannuation Industry (Supervision) Act 1994 (Cth) (SIS Act). Section 68A prohibits fund trustees from offering certain inducements to employers on the condition that their employees would join the fund. However, despite the prohibition from such inducements there is no civil penalty for breach of section 68A of the Act to deter this behaviour. Importantly, employees have little practical recourse if their employer is persuaded to switch their super to a bank-owned superannuation fund which, on average, have historically produced lower net returns to members. In addition to problems with enforceability, the scope of s 68A is too narrow. 5 Productivity Commission, Default Superannuation Funds in Modern Awards - Inquiry Report No. 60, 5 October 2012, p 187 7

11 The Productivity Commission s Draft Report on how to assess superannuation competitiveness and efficiency has noted concern around fund activities that contravene the legislative prohibitions on inducements to employers. 6 There is also anecdotal evidence of service providers advising businesses on the selection of default funds benefiting from this relationship, at the expense of the selection of the most suitable default fund for the employees of the business. In its Draft Report on efficiency and competition in the superannuation system, the Productivity Commission observed: Further, due to the presence of principal agent relationships whereby the employer is making decisions on behalf of the employee there is a risk that the corporate tender could consider features that are valuable to the employer but not members (such as compatibility with payroll systems). The ISA has also suggested that employers can face conflicts of interest. In some cases, following a corporate tender process, the employer selects a fund with which they have an association. For example, the fund is part of a corporate group which is also a key client of the employer or provides banking services to the employer. (sub. 38, p. 55) Another practice that can disadvantage members is flipping, where members are transferred without their knowledge from a discount product into a full-fee product after leaving a particular employer. anecdotal evidence suggests that the practice of retail funds offering fee discounts as part of a corporate tender on the expectation that members will cease employment with the employer, enabling the fund to flip the member into a higher-fee fund without their informed consent continues to occur. (ISA, sub. 38, p. 20) The review should examine the use of incentives to persuade or encourage employers to switch to bank owned default superannuation and identify options for reform. Policy solutions put forth by ISA include reforms to the current prohibition to ensure that it is effective, including the introduction of civil penalties for breaches of the bank bundling prohibition in the SIS Act to ensure regulators are properly equipped to keep financial institutions accountable. It is also necessary to examine whether the ban on receiving conflicted remuneration needs to be expanded to ensure that it captures monetary and non-monetary payments between employers, banks, related entities, consulting firms and service providers in the context of selection of default funds. 6 Page 88, PC Draft Report 8

12 2.3 Scope of review excludes life insurance commissions Issue The Review excludes remuneration structures, product design issues and the quality of life insurance products on the basis that the banking industry supports implementing the recommendations of the 2015 Trowbridge Review, commissioned by the Association of Financial Advisers (AFA) and the Financial Services Council (FSC). The rationale for this exclusion is flawed, given the Government s decision not to implement the recommendations arising from Trowbridge, by introducing a weaker set of reforms in November A Bill to implement these weaker reforms has lapsed and at the date of this submission is yet to be reintroduced. Recommendation Given that the Government has decided not to implement Trowbridge, the review should make recommendations for industry-led reform to align remuneration structures for life insurance with consumer outcomes. ISA also recommends working towards a transition to a full ban on the payment of commissions Impact of conflicted remuneration in life insurance sales In the market for life insurance, commission structures do not just lead to biased advice. Commission structures result in excessive churn of life insurance policies, with clients often recommended to change cover so advisors can attract the more generous level of commissions in the first year of cover. There are documented instances in which this was found to occur without the client s personal circumstances being taken into account and often executed through the falsification of client information. In October 2014, ASIC released Report 413 which presented the findings of ASIC s research into, and surveillance of, personal advice given to consumers about life insurance. According to Report 413: More than a third of advice (37 per cent) did not meet the laws relating to appropriate advice/act in the best interest of the clients, a result that ASIC describes as an unacceptable level of failure 96 per cent of the poor advice was given by advisers paid under commission models Where an adviser is paid under an upfront commission model it has a statistically significant bearing on the likelihood of that adviser giving advice that did not comply with the law The 2014 Financial System Inquiry identified conflicted remuneration in insurance as an important issue to be resolved if public trust and confidence in the financial system is to be restored. The Inquiry recognised the ill effects of commissions in insurance, but took a conservative approach, recommending revisiting a ban on commissions only after another unspecified period of trailing level commission structures. Five years before the Inquiry, the original FoFA legislation excluded a ban on commissions on personal risk on the basis that there were no problems to address in the industry. Report 413 makes clear the false nature of that assumption. 9

13 2.3.2 Current treatment of commissions in life insurance advice in super While the FoFA reforms prohibited most conflicted remuneration in financial advice, advice in relation to life insurance was exempt from this prohibition due to strong lobbying by life insurance companies and banks, who were successful in arguing that there was no evidence of problems in life insurance advice. As a result of this carveout, sales commissions and other incentives between life insurance product providers and financial advisers remain the dominant remuneration structure in the market for life insurance, with many of these arrangements underpinned by vertically integrated product and advice businesses. In 2011 the then-labour Government proposed a ban on commissions for both individual and group risk insurance within superannuation 7, however in the final implementation of the FoFA reforms the Government decided that the ban on commissions for investment products and group insurance should not apply to individual insurance within superannuation. This has created a two-fold approach to the treatment of commissions on insurance inside super the ban on commissions applies to group life policies for members of a superannuation entity or life policies for a member of a default superannuation fund, but does not apply to individual policies. In effect, retail clients who are sold life insurance products under an individual policy (both inside and outside of super) are not afforded the same level of protection by FoFA from conflicted advice as those who are insured through their funds default option or group life policy. The differential treatment of commissions in life insurance advice is shown below: Policy type Does FoFA apply? Effect Policy falls within group insurance policy within super Policy is facilitated by an individual policy within super Policy falls within default option Policy is facilitated by an individual policy outside of super Ban on commissions applies Ban on commissions does not apply Ban on commissions applies Ban on commissions does not apply Advisers are not incentivised to recommend certain types of products Advisers are incentivised to recommend products delivering the best commissions with no protection for consumers Advisers are not incentivised to recommend certain types of products Advisers are incentivised to recommend products delivering the best commissions with no protection for consumers The Government s proposed changes In November 2015 the Government announced a package of measures which continue to permit commissions in life insurance in some circumstances. In March 2016 the Government released the Corporations (Amendment Life Insurance Remuneration Arrangements) Bill which gave effect to the measures summarised below. 7 Australian Government, 'Future of Financial Advice 2011: Information Pack', 28 April pp

14 Proposal Effect a) In the first year of the policy, 100 per cent of Advisers who churn clients after one year and one day the commission paid to the financial adviser in will be able to retain 40 per cent of upfront commission the first year will be repaid to the life insurer. payments, while advisers who churn clients after two b) In the second year of the policy, 60 per cent of years and one day will be able to retain the full amount the commission paid to the financial adviser in of upfront commissions. the first year will be repaid to the life insurer. Capping upfront commissions at 80 per cent from 1 July 2016, 70 per cent from 1 July 2017 and 60 per cent from 1 July 2018 (of the premium in the first year of the policy) The generous clawback provisions mean that advisers will be able to retain as much as 80 per cent of the premium in the first year of the policy if they churn clients after two years and one day. The Government s stated rationale for the changes is to align the interests of consumers and those providing advice, 8 yet the conditions fall short of the recommendations of the Trowbridge Review into Life Insurance Advice and the Final Report of the Financial System Inquiry. The Government continues to argue that the need to ensure that insurance is affordable justifies treating life insurance differently from other financial products. However, this is at odds with ASIC s findings that commissions actually increase the cost of life insurance policies. Underinsurance has persisted despite sales commissions being an almost universal feature of the insurance industry since its inception. There is no evidence that sales commissions lead to or are necessary for higher levels of insurance coverage. ISA reiterates its longstanding view that all forms of commission for retail life insurance should be prohibited. 2.4 Scope of review excludes FoFA compliant business models Issue: The Review explicitly excludes advice related business models that comply with the FOFA reforms. While FOFA banned certain forms of conflicted remuneration, this was not comprehensive. There are many exemptions and many streams of conflicted remuneration that were also grandfathered. This affects incentives and therefore consumer outcomes across the board for retail banking products, as well as superannuation and other investment products. Recommendation: The review should identify conflicted remuneration structures for advice permitted under FOFA, examine whether and how these could result in poor consumer outcomes and formulate recommendations to address these issues. ISA recommends the cessation of the payment of all sales commissions on investment and insurance products, including currently grandfathered commissions, by 1 January The FoFA reforms included a selective ban on many forms of conflicted remuneration, including the payment of commissions and other sales incentives that rewarded sales staff for selling financial products under the guise of advice, regardless of whether they met consumer needs. The FoFA reforms included a number of very significant exemptions and concessions to various parts of the industry. A number of these have been discussed above, including carveouts for life insurance commissions 8 Explanatory Memorandum, 2016, Corporations Amendment (Life Insurance Remuneration Arrangements) Bill P 3 11

15 on individually advised life insurance within superannuation and the balanced scorecard exemption which means that sales of super products by bank branch staff can be incentivised. Generous grandfathering arrangements The FoFA reforms also provide generous grandfathering arrangements which are a powerful incentive for advisers to leave clients in underperforming products and continue to earn commissions. There is limited public data available on the extent of these arrangements in the retail sector. ISA recommends that the review undertake analysis on the impact of these arrangements and the value of these commissions in order to quantify their impact on conflicted advice. ISA recommends working towards a transition to a full ban on the payment of commissions for example a full ban on all existing and new commissions from Customer outcomes Issue: The reviewer will also provide observations and insights to assist the banks ensuring they have overarching principles on remuneration to support good customer outcomes. Unlike the rest of the terms of reference, the scope of this is broader than retail banking. It is unclear why this broad approach is limited to a review of overarching principles. Recommendation: If ISA s recommendations are not adopted, the review should at least address these issues in the overarching principles on remuneration to support good customer outcomes. ISA supports the review s provision of observations and insights from the review to assist the banks to ensure they have overarching principles on remuneration and incentives to support good customer outcomes and sound banking practices. Some stakeholders have suggested that a way to measure whether banks are delivering good consumer outcomes is by conducting customer surveys. We are cautious against this approach as evidence from the field of behavioural economics demonstrates that it is hard for consumers to assess the quality of outcomes due to the complex nature of financial matters. For example, in a 2011 ASIC shadow shop on retirement advice 86% of the participants felt that they had received good quality advice whereas an assessment by ASIC found that only 3% of the advice was good quality. 9 This demonstrates the impact of cognitive limitations on consumers in terms of understanding the impact of conflicted remuneration arrangements. Innovative thinking is required to overcome this problem. For example, one option would be to prescribe that providers must include a visual comparator on member statements showing how a member s outcome compares against a high-performing industry benchmark. ISA will be proposing the development of a comparator of this sort alongside the better off test. 9 REPORT 279: Shadow shopping study of retirement advice Page 54 12