There is currently no legal requirement for product providers to move legacy clients into cheaper products, but that could change in the wake of last week’s royal commission hearings, says NGM Consulting.
Product providers could be the next in line for an explicit ‘best interests’ obligation following the revelations at the royal commission hearings last week, says NGM Consulting.
In its latest ‘Trialogue’ article, NGM Consulting noted a distinct “adjustment” at last week’s hearings when it comes to product providers.
“It relates to the test that we should use when making ‘conflicted decisions’, where the interests of consumers are at odds with the commercial interests of the firm,” said NGM.
Counsels assisting the commissioner delved into examples where product providers had a range of products, said NGM – “the more contemporary of which are unambiguously known to be better and cheaper than the older, legacy products.”
“An adviser might be expected to shift the client into the better product, but as a product manufacturer many have declined the opportunity to carve up their own revenue line to ensure clients are shifted to the more contemporary product solution,” said NGM.
One example came about in evidence of AMP head of platform development John Keating, who failed to explain why clients had not been moved out of platforms AMP’s own benchmarking guide rated as ‘uncompetitive’ with the broader market.
It is unlikely product providers would fall into legal trouble for this kind of behaviour, said NGM – “until now”.
“There is a test of ‘community standard’ being applied to decisions made by for-profit institutions,” said the consulting firm.
“Regardless of where this all lands, it’s clear any attempt to walk-back the standard from the new high set by the commission will not help the industry’s reputation.”
“One thing is clear – change is coming.”
I recently called the company which has our mortgage and asked about a better rate because I was looking around. They immediately offered .3% less than the current rate being charged.
When I asked why they could just apply this across the board to all mortgage holders, the answer was they couldn’t communicate such a drop to everyone!
Obviously a dumb response when considering they always advise rate changes either up or down. So legacy products/pricing should be scrapped because they are harder to manage and are uncompetitive.