Dodgy advisers using legal loophole to cold call on super

The financial services sector is grappling with a rise in unsolicited dodgy advice calls, 16 months after anti-hawking reforms came into effect.

The AIST wants financial services to be included in anti-hawking legislation, but adviser groups say it already is.

The AIST is calling for a crackdown on financial advisers cold-calling consumers, as the industry grapples with a rise in unsolicited dodgy advice.

In its pre-budget submission to the federal government, the AIST, the peak body for the $1.6 trillion profit-to-member super sector, called for anti-hawking legislation to be extended to cover financial services as well as financial products, arguing that consumers are just as vulnerable when receiving a cold call from an adviser as from a product seller.

A carve-out in the current legislation was permitted for advisers as this segment of the market was already captured by the best interests duty, which requires that advisers act in the best interests of clients when providing financial advice.

But dodgy advisers are increasingly using the loophole to call unsuspecting consumers and push them into lower performing super products, charging thousands of dollars in fees in the process.

Indeed, the practice of cold calling by this segment of the market has actually increased since amendments to the anti-hawking regime came into force in late 2021, as part of the recommendations handed down following the financial services royal commission.

“AIST is concerned that this (legislation) does not cover cold calling from advisers who then go on to charge exorbitant fees (up to $6000) to roll the consumer from their existing fund (often a high performing, low fee profit-to-member fund) to a poorer performing retail fund,” AIST chief executive Eva Scheerlinck warned.

“The same imbalance of power exists in the unsolicited sale of financial services as existing in the unsolicited sale of financial products.”

AIST’s 38 industry fund, public sector and corporate fund members include the nation’s biggest super funds AustralianSuper, Australian Retirement Trust and Aware Super.

Ms Scheerlinck said AIST was aware of a number of financial planning businesses that used intermediaries to solicit business by cold calling and that although Financial Services commissioner Kenneth Hayne had recommended superannuation products be subject to anti-hawking rules, with these changes coming into effect 16 months ago, the hawking of financial services such as advice was not included.

Despite the rise in dodgy advisers giving unsolicited advice, Association of Financial Advisers CEO Phil Anderson cautioned against broadening the anti-hawking provisions.

“I don’t know that the solution is to remove that exemption. The vast majority of advisers are doing the right thing. This is an example of a minority who are doing the wrong thing so it shouldn’t necessarily bring about a change that impacts everyone,” Mr Anderson told The Australian.

“Anti-hawking legislation is fairly broad in its impact. So there are circumstances where a client has legitimately come to talk to an adviser and the ultimate advice they’re given is broader than what they initially requested. So what the AIST is proposing might have broader negative consequences.”

But Ms Scheerlinck argued that the current “whack-a-mole” approach currently employed by ASIC to weed out dodgy advisers does not address the systemic risk to consumers,

“We all know the feeling of receiving an unsolicited call from a number we don’t recognise and speaking to somebody we don’t know who is trying to sell us something we don’t need or even want,” she said.

“When they’re selling financial services like superannuation advice to skirt around a gap in the law and trying to bamboozle consumers with half-truths into signing up for a costly service that is not in their financial interests, it should be outlawed.

“Accordingly, we strongly support extending the anti-hawking ban to the sale of financial services.”

Despite not supporting the expansion of the legislation to include advisers, Mr Anderson noted the AIST’s “valid” concerns and said those in the industry not giving appropriate advice “should be investigated and action taken”.

He added that the AFA had received complaints in the recent past, including from its own advisers, about intermediaries calling on behalf of dodgy advice firms.

“(There are) groups that contact people and get confirmation that the (consumer) is willing to talk to someone about their superannuation arrangements … I have serious concerns about those sorts of models,” he said.

The association had received a “handful” of such complaints and these were then reported to the Australian Securities and Investments Commission, Mr Anderson said.