Proof reforms to financial planners needed

Regulator shadow shop show it’s high noon to get real help for retirees

CHOICE says the results of an ASIC shadow shop of financial advice for retirees sadly shows the old problems of poor and conflicted advice are still widespread.

The consumer group says the Australian Security and Investments Commission findings reveal that, while the best financial planners give ethical and professional advice, far too many do not.  

“CHOICE pioneered the shadow shop concept in the 90’s and it’s a very effective way to get reliable data on specific consumer issues. We are very pleased with the way ASIC has developed the strategy,” says CHOICE Chair Jenni Mack.

The regulator’s investigation found more than one third of the examples of advice given in relation to retirement planning were poor and only three percent were described as good quality advice.

“ASIC’s shadow shop found the same issue of clients being switched out of their current financial products into their advisor’s in-house products. These are usually expensive and without any clear advantages to clients, suggesting the advice is more in the adviser’s than the client’s interest,” says Ms Mack.

Ms Mack says one particularly worrying finding from ASIC’s in-depth interviews with financial advice clients was that many can’t tell the difference between good and bad advice.

 “Where ASIC found the advice to be poor, some consumers expressed high levels of trust and confidence in their adviser and their strategy. On the other hand, financial advice that was honest and direct, but not to the client’s liking, was deemed to be less trustworthy. That result is worrying.

“The irony of this situation underlines the need for an independent advice and advocacy body around superannuation. Super is complex, confusing and compulsory and a strong consumer voice is needed,” says Ms Mack.

CHOICE says another worrying finding of the shadow shop is that, in no case where ongoing asset based fees were charged, was the advice considered good. ASIC found one document that said the advisor was moving away from trailing commissions but the fee would be charged at the same rate and in the same manner as the trail commission.  

“This underscores our concern that ongoing asset fees will be used to replicate trailing commissions, meaning people will continue to pay for poor advice or no advice at all,” says Ms Mack.

The findings of the ASIC shadow shop reinforce CHOICE’s call for an independent superannuation consumers’ advice and advocacy service to provide assistance and push for reform.  ASIC also suggests the need for an independent service to provide consumers with a second view on advice.

CHOICE believes the results of ASIC’s shadow shop highlight the fact that the Future of Financial Advice (FoFA) reforms, which only passed Federal Parliament last week, have come not a minute too soon.

“The reforms may have been passed but it’s clear there’s still a long way to go before consumers can have real trust and confidence in the entire financial advice sector,” says Ms Mack.

Media contacts: 
Jenni Mack, Chair of CHOICE – 0429 300 458
Christopher Zinn – Director of campaigns and communications, CHOICE - 0425 296 442

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