THE AUSTRALIAN REAL ESTATE BLOG
Continued from the main page of The Australian Real Estate Blog ...
Protecting Consumers From Their Own Trusting Natures
 by Tim O’Dwyer
Queensland Solicitor & Consumer Advocate
watchdog@argonautlegal.com.au
(This article first appeared in the Canberra Times
Last year the Australian Securities and Investments Commission released a disturbing report on an investigation into the nation's $560 billion financial advice industry. No-one was surprised when ASIC found that, despite the introduction of the Financial Services Reform Act earlier this year, some financial advisers were failing to disclose "soft dollar commissions" or their disclosure of kickbacks, bonuses and rebates from financial bodies was vague or confusing.
ASICs executive director of Consumer Protection, Greg Tanzer, explained that the Act's disclosure-based approach came from the view that an informed investor could make the best decision. Consumers are apparently adequately protected "once things are appropriately disclosed".
ABC Radio National's Background Briefing program demonstrated this was a flawed approach to the protection of consumers, whether they be financial or property investors, home buyers or mums, dads and their kids in the market for mobile phones.
Associate Professor of Economics at Sydney University Dick Bryan told the ABC that "ordinary old punters" found "extensive amounts of [disclosure] documentation more likely to be confounding than clarifying."
Principal policy officer at the Association of Super Funds, Brad Pragnell, believed that in the case of financial planning advice, ASIC was sometimes unwittingly doing the opposite of what was intended - pushing for so much information to be disclosed and "just baffling consumers".
So what motivates those legally obliged to disclose?
Pragnall said, "Disclosure is being driven more by service providers and product issuers to protect themselves in terms of their liability as opposed to providing information which is clear, concise and effective and going to aid consumers make decisions."
"Companies are using disclosure to protect their backs rather than protect consumers," concluded Background Briefing.
Chief executive of the Australian Consumers Association, Peter Kell, was concerned about "too much emphasis on disclosure as the only tool in the regulatory tool kit.
"There seems to have been an approach in some areas of anything goes as long as you disclose," he said, suggesting that other solutions were needed, including the introduction of "laws that prohibit unfair contract terms in our national regulatory regime as soon as possible."
When the chairman of the Australian Competition and Consumer Commission, Graeme Samuel, was asked if, after kickbacks and commissions were declared, consumers had to embrace the principle of caveat emptor (buyer beware) and make informed choices, he asked in reply, "Do we try and educate consumers to be careful and to look after their own interest, or do we take away the choice?"
Samuel had two words for consumers: "Be careful."
Professor Bryan's similar conclusion was that it was up to consumers who saw a financial planner, or any other seller of goods or services, to know their legal rights and responsibilities. "The buck stops with the consumer," he said.
I disagree. The "buck", in fact, must start with governments which have to work out how to protect consumers from our own trusting natures.
Even the best and toughest consumer protection laws are worthless unless they are adequately enforced.
While the 19th century English philosopher, Herbert Spencer, suggested that shielding folk from the effects of their folly would fill the world with fools, times have changed, our society is less laissez faire and more caring. So people must be protected from the predatory deceit of others.
Governments have to ensure their regulators have not only the wit and will to do their jobs, but also adequate funding. Whether it is financial advisers, mortgage brokers, real estate agents or legal practitioners, the basic principal of consumer protection funding should be "causer pays". Let those whose conduct needs to be regulated by government pay more for their licences to operate. That way industries and professions themselves will indirectly fund consumer protection and regulation.
Also needed is some really creative consumer eduction. Ship out the public servants and government lawyers who seem to think only in terms of sentences on A4 pages. Consumer protection agencies must begin to consult with and listen carefully to selling and marketing experts, behavioural scientists and advertising gurus. Consumers may need to be educated (and warned) in the same way they are entertained colourfully and cleverly through radio, TV, movies, the internet and magazines. The backs of buses, billboards and even flashing neon signs may be some of the media to be considered to get this message across loudly and clearly: Don't trust anyone, and if you do, assume they will let you down.
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