ASIC suggests post-shadow shopper improvements

The Australian Securities and Investments Commission (ASIC) has proactively followed up the main findings of its shadow shopping survey regarding superannuation choice with some suggestions for licensees on how to address problems uncovered by the report.

The regulator found 19 per cent of advice was given without a reasonable basis. It found the main problems were advice offered on switching from non-retail to retail funds, and a general lack of consideration of the insurance implications of a fund switch.

ASIC felt future results could be improved through better training on insurance and non-retail products, as well as ensuring advice incorporated comparisons between funds.

In particular, ASIC would like licensees to supply financial planners with tools that enabled easier research of non-retail funds.

Speaking at the Financial Planning Association’s National Principals’ Forum and CFP Retreat, ASIC executive director, consumer protection, Greg Tanzer said: “There is a bit of work to be done around ensuring advisers have tools for easy research of these funds.

“There are third party research houses that have detailed information about fees, insurance arrangements and so on, and I’d encourage licensees in particular to think about what extra tools they can give advisers so there is easy access to information about non-retail funds.”

Another key finding of the shadow shopping report was that Statements of Advice (SOAs) were not given in 47 per cent of cases where they were required.

The main areas of concern were situations where a hold recommendation or high-level consolidation advice was offered and the adviser strayed from general to personal, and where an SOA was issued for an additional fee only after the client agreed with the initial verbal advice.

The regulator suggested additional training for planners on the distinction between general and personal advice would improve the current situation.

Tanzer said results could also be boosted through effective coaching of advisers.

“Licensees might also give advisers examples of scripts that demonstrate how to help clients without going over the line into personal advice. We did see in many cases verbal personal advice that could have been rephrased as general advice,” he said.

The regulator is also planning to relax the rules governing events where SOAs are required.

“We have suggested to Treasury that a hold recommendation shouldn’t necessarily require a SOA, at least as long as the adviser doesn’t have a conflict of interest in the basic hold recommendation,” Tanzer said.

The shadow shopping exercise also found 44 per cent of SOAs did not disclose the reasoning behind the advice offered, especially when examining the fund selection for a super switch and the insurance issues linked to it.

To address this finding, ASIC has suggested licensees formulate a SOA template that focuses the adviser’s attention on the client’s circumstance and goals, and provides training on how to write a SOA.

“We suspect that many advisers, when discussing advice with their clients, probably give clear reasons to their clients about why it is that they’re recommending a particular thing. We suspect that if advisers put the same sort of effort into the clarity of their writing, indeed in the SOA themselves, we’d have much better SOAs as a result,” Tanzer explained.

“Perhaps in training licensees could encourage their adviser just to write a couple of sentences about why it is that this particular advice is suitable for this particular client,” he added.