Annuities are being sold to clients with minimal advice, the Financial Planning Association (FPA) warns.

It says members report annuities being sold to consumers for 90-100% of their portfolio that was otherwise to be held in term deposit-style investments.

In a submission to Treasury on the Future of Financial Advice (FOFA) reforms, the FPA says rules on the limited carve-out for basic banking products are being misused.

“This measure is only meant to apply with regard to the provision of factual information and not ‘advice’,” the submission says. “Sometimes this can be a very fine line and there are probably many cases when the factual information given is definitely trying to influence the client to take action on a product.”

The FPA says case studies have shown more than $1 million of annuities being sold to elderly clients. Commissions on these were almost 1%, the association says.

“Clients were not ever met – this was constructed through a phone meeting.

“Advice was given that the basis for the advice was that funds were capital guaranteed – which is not the case with these products.”

The FPA says clients were advised 3% is a very good return – better than the term deposit.

“The clients did not understand the product at all. It appears these products are being sold as a basic product with commissions still being paid.”

The FPA says annuities are not simple financial products and should be recommended through personal financial advice only if they are in clients’ best interests.

“They should not be ‘sold’ to consumers. We question whether the carve-out for basic banking products from the best-interests obligations and conflicted remuneration provisions is exacerbating the risk of mis-selling for consumers.”

The FPA wants a ban on annuity sales under the basic banking product carve-out, and wants the Federal Government to examine compliance issues under the FOFA legislation.