FPA's shadow shop response underway as ASIC outlines failures
The Financial Planning Association's (FPA) shadow shopper workshops got underway in Brisbane yesterday amid calls from planners for the Australian Securities and Investments Commission (ASIC) to provide clarity, while at the same time ASIC commissioner Peter Kell spoke on the issue in Sydney.
Kell told the audience at a Financial Services Council (FSC) and Association of Financial Advisers (AFA) breakfast in Sydney yesterday that the two out of 64 plans assessed that were rated "good" had met client needs and satisfied the law, featuring product recommendations that followed rather than directed the strategies.
The 37 plans deemed "adequate" fell short in one or more areas, and missed an opportunity to provide value to the client.
The 25 plans assessed as "poor" did not meet their objectives, and in many cases would actually be detrimental to the client - for example, by switching them to a product with higher fees but no tangible benefits, he said.
Responding to a question from the audience pointing out that more expensive products often have other benefits such as improved insurance and investment options, Kell said some clients were switched to a higher fee product with no additional benefit and in some cases actually had fewer options than they had in the cheaper product.
One plan even had the previous client's details on the statement of advice (SoA), he added.
Other poor examples included glaring omissions - for example, not addressing the fact the client's retirement funds would run out four years into retirement. "There were too many examples where the limitations weren't explored," Kell said.
While ASIC would not be undergoing a formal review with licensees involved in the shadow shop, it would be providing some feedback where there was a problem with poor plans, he said.
Participants in the shadow shop were all consumers who sought out and paid for their own advice, while an expert advisory panel assessed the delivery of results, he said.
Around 150 FPA planner members attended the opening shadow shop workshop in Brisbane, according to the FPA, and heard from a panel comprising representatives from ASIC, the Financial Ombudsman Service, the FPA and a Certified Financial Planner professional.
The workshop featured a presentation on the shadow shop methodology and a discussion of a hypothetical case study containing elements of good, adequate and poor advice.
Participants requested further information on what needs to be included in a SoA, how to balance detail with brevity in a SoA, how to best assess and disclose scope of advice, and how to communicate product replacement recommendations in a SoA, according to the FPA.
Members indicated improved communication and education from ASIC to facilitate good advice was needed.
"We know that it's not easy to determine objective measures for 'quality advice', but the FPA's key message is that the most effective strategy and the answer to the issues highlighted in the ASIC shadow shopper report is to work to the FPA Code of Professional Practice," said FPA chief professional officer and panel member Deen Sanders.
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