Investors with money tied up in archaic products could be rid of them under plans by the Treasurer Peter Costello to reform outdated industry practices.
Under plans announced on Friday, legacy products – those closed to new investments – in the life insurance, managed funds and superannuation sectors could be removed more easily and without financial detriment to the member or investor.
They would be rolled over into a more up-to-date product.
Currently, many legacy products can only be rationalised if all members of the scheme agree, but such a move generally requires a high level of financial literacy.
Since the 1980s there has been a significant increase in the number of legacy products that are closed to new clients and that operate on obsolete computer systems.
“The level of manual processing involved can make legacy products vulnerable to error and fraud,” Parliamentary Secretary to the Treasurer Chris Pearce told a meeting of the Investment and Financial Services Association (IFSA) in April.
IFSA estimates that legacy products account for around one third of the 6,000 financial products in the funds management, super and life insurance industries.
“If a simplified process enabling financial products to be rationalised is not introduced, the costs to the financial services industry and its customers will increase significantly as the number of legacy products increases,” IFSA chief executive Richard Gilbert said.
The Government said intervention is needed to help “excessively cautious” beneficiaries of the products to make sound decisions.
Processes that are already in place to rationalise financial products, particularly within the super and life sectors, vary widely and ‘do not observe common standards of investor protection and procedural fairness to beneficiaries’, it said.
