The Financial Planning Association (FPA) has suggested that the Government should consider applying a risk rating to financial products, utilising guidance from the Australian Securities and Investments Commission (ASIC).
In a submission filed with the Senate Economic Legislation Committee, the FPA has suggested that target market determinations of products with high risk ratings should be required to include a stronger consumer warning and a recommendation to seek personal financial advice about the product.
The submission, part of the Senate Committee’s review of the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Bill 2018, also saw the FPA urge the parliamentary committee to ensure the consumer protection mechanisms introduced under the Future of Financial Advice reforms, particularly the best interest duty, were not impacted by the new legislation.
“There is no benefit, and potentially a significant consumer detriment, in also applying the product design and distribution obligations to personal financial advice,” the FPA submission said.
“While the target market determinations to be introduced under this Bill are a positive step forward, some products are complex and present a significant risk to consumers that may not be fully represented or understood under the requirements in the Bill,” it said, suggesting that a risk rating might be considered.