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Australia Could Require ABCs To Base Recommendations On Best Price, Not Commercial Interests

July 11,2018



The Australian Competition and Consumer Commission has released a final report on retail electric market reforms that includes a recommendation for development of a prescribed mandatory code of conduct for third party intermediaries which includes an obligation that any recommended offer is in the best interests of the consumer (rather than on the basis of the intermediary’s commercial relationships)

"The Australian Government should prescribe a mandatory code of conduct for third party intermediaries ... For example, offers should be recommended based on price benefit to the consumer rather than the size of the commission received by the third party. The code should contain civil penalty provisions for any breaches," the ACCC report recommends

Per the report, the ACCC considers that the mandatory code should cover any third party intermediary that offers a service that involves recommending an electricity offer to a consumer, regardless of whether the intermediary has a direct relationship with the retailer. This includes comparator services, connection services, brokers, and automated switching services, and if future business models emerge that make recommendations to consumers, they should be covered by the mandatory code.

Concerning price comparisons from third parties, the ACCC considers that the default method of displaying results should always be based on the estimated bill with options to alter the display if the consumer wishes to prioritize other contract terms over price, or the third party intermediary clearly advertises that it compares non-price outcomes for example, solar credits or green energy. If a filter is selected, filtered results should be recommended in ascending price order.

"A key consideration for the code will be balancing the incentives for third party intermediaries to promote offers from retailers that pay the highest commission, and the interests of consumers to find the lowest priced offer. The code may need to include disclosure obligations relating to the commissions paid by retailers and fees charged by third party intermediaries or other provisions to reduce the incentives for third party intermediaries to maximise profits to the detriment of consumers that use their services. One way to balance these incentives would be to require third party intermediaries to charge a flat fee for all retailers, and pay commissions to staff at the same rate regardless of what recommendation is made to a consumer. This would remove the financial incentive to recommend an offer to a consumer that is not suitable for them," the report says

"Commercial relationships between third party intermediaries and electricity retailers (or related entities) should also be clearly disclosed," the report says

The ACCC considers that there is lack of transparency around the methodology and assumptions used by third parties for estimating bills and making recommendations. "We consider that more disclosure around the assumptions and methodology used by the third party intermediary will better enable consumers to understand how the third party intermediary operates and why an offer is being recommended. The mandatory code should require disclosure around the assumptions and methodology in a way that would assist a reasonable consumer to better understand how the decision making has been done by the third party intermediary," the report says

The ACCC noted that many third party intermediaries undertake the switching process for the consumer, including obtaining the consumer’s explicit informed consent to switch. "The mandatory code should include obligations relating to how an intermediary should obtain a consumer’s explicit informed consent to arrange a one off switch or undertake multiple switches during a specified term. The mandatory code should set out clear enforceable obligations for third party intermediaries in obtaining authority from consumers and giving explicit informed consent in order to manage risk around consumers being switched inadvertently," the report says

The report includes various of consumer protection recommendations

See the report here

Tags:
Australia   Brokers   Sales Channels  

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