05.Twenty years of campaigning
A review of CHOICE research and investigations over the last two decades vindicates our public statements that the industry needed urgent reform to protect consumers. Twenty years later Minister Chris Bowen's changes will uproot entrenched practices that harm investors, but how many victims could have been saved if our advice has been heeded earlier by his predecessors?
“Many financial advisers are simply agents for fund managers and investment companies; although they claim to offer impartial and independent advice, their main priority is to sell as many investments as possible, so the client’s needs are often pushed into the background.” (In) vested interests, CHOICE, March 1990.
“The further we delve into the industry, the less attractive it appears. All of these arrangements are structurally corrupt." Australian Consumers' Association chief executive, Louise Sylvan, in the Australian Financial Review. 1995
We launched our first “shadow shop” of the advice industry, with disturbing results. Less than 10% of the 58 financial plans examined were classified as good, based on the scores of our expert panel. 65% ranged from acceptable down to bordering on poor, while a quarter were sub-standard. “This is extremely alarming and compelling evidence that the regulatory system is simply not functioning to protect consumers and needs urgent, radical overhaul. Thousand of Australians are in the hands of incompetent, sales driven and in some cases, dishonest financial advisers right now. Forceful action is urgently needed to protect them.” Take my advice? CHOICE, April 1995. 1998
Our shadow shop found finds many planners falling short of the industry’s own best-practice standards. “The best comprehensive plans were generated when a client had a significant amount of money available for immediate investment,” we wrote. “It’s unacceptable that the quality of advice is determined by the amount of money you have to invest. Everyone who seeks financial guidance should have access to professional, independent and comprehensive financial planning services. The industry won’t be able to provide this access until it addresses some deep problems, in particular the fact that many advisers are still commission-driven and restricted in the range of products they can or are prepared to recommend. On the other side of the coin, expect to pay a professional fee for service if you want a planner to properly assess your financial needs and objectives and come up with comprehensive, suitable strategies and recommendations. If you’re getting cheap advice, it’s probably poor advice.” Who do you trust with your life savings?, CHOICE, October 1998. 2003
Another large-scale shadow shop, this time a joint project with ASIC. “The quality of advice given by some financial planners in our survey is frighteningly poor. The ‘advice’ given often seemed like thinly disguised product selling. Far too many planners behaved more like salespeople for fund managers than impartial financial guides. Plans graded poor or very poor (27% of the total) were grossly inadequate.” Too many poor plans, CHOICE, January/February 2003. 2005
“Financial planners want to call themselves professionals, but they don’t want to commit to the fundamental underpinnings of a profession – the fiduciary duty to the client. This would require the elevation of the client’s interest over and above the industry’s and require the removal of all conflicts of interest. Structural conflicts in the industry undermine consumer confidence, destroy trust and suggest the industry is without integrity. My message to you is this: unless the industry reforms itself, change will be imposed.” Jenni Mack, CHOICE Chairperson, in a speech to financial advisers. 2006
“There’s no valid justification for trail commissions and fund managers should abolish them as a payment method to planners. Trails paid by fund managers create a conflict of interest for financial planners.” Unhappy trails, CHOICE Money & Rights, October/November 2005.. 2009
“Conflicts can mean that advisers are effectively salespeople of product providers. Conflicts can encourage advisers to sell products instead of providing strategic advice. Conflicts may provide incentives to recommend products that are inappropriate. They can encourage advisers to churn clients through products. Worse yet, they can encourage clients to borrow inappropriately to invest. Upfront and trail commissions, asset based fees, soft dollar commissions and volume bonuses all exhibit one or more of these conflicts. This is not a marginal problem. Around 85 per cent of adviser revenue is generated through these payments.” CHOICE evidence to Parliamentary Joint Inquiry, September 2009. 2010
“Consumers will be the winners as a result of the federal government’s decisive action to end commission-based remuneration for financial planners. CHOICE has argued over many years that commissions create an unacceptable conflict of interest for financial planners which can lead to dangerous or poor quality financial products being sold to consumers. The government’s plans incorporate many of the recommendations we made to the parliamentary joint committee on financial services. We are particularly pleased that asset-based fees will not be levied on geared products. But we remain concerned that the industry is attempting to transition from commissions to asset-based fees. Our preference is for fixed fees which could be either a fixed lump sum or hourly rate charged by the adviser to the client.” CHOICE Media statement