Australia’s largest distributors of financial planning advice are coming under increasing fire over the quality of their financial planners following the release of a damning report by the Australian Consumers’ Association (ACA) and theAustralian Securities and Investments Commission(ASIC).
The report, released last month, was the result of a year long investigation involving consumers secretly approaching advisers to obtain financial plans, which were then tested by a panel of industry experts.
The report found only two out of a total of 124 plans were considered ‘very good’, while 23 were considered ‘good’ and 36 ‘okay’.
The remaining plans were considered ‘borderline’ or worse, including 21 that were rated ‘poor’ and 12, from 10 different groups, which were considered ‘very poor’.
The chief executive of the ACA, Louise Sylvan, says the report proved that none of the financial planning groups involved in the investigation were necessarily good enough to recommend to consumers.
However, she was especially scathing of the performance of the larger distributors of financial planning advice, particularly the big four banks.
“The point of this test was not to have the industry running scared. We wanted to be able to direct consumers to advisers who would do good by them. But based on these results, we are unable to make recommendations,” Sylvan says.
“None of the big four banks got a result that was ‘good’ or ‘very good’,” she adds.
The statement is not entirely correct — a number of plans prepared by advisers working for theGodfrey PembrokeandApogeedealer groups, which are both owned by the National Australia Bank (NAB), were rated ‘good’.
However, the report did show without question that the quality of plans varied greatly across different advisers working for the same group.
This was particularly evident with the larger distributors of advice, which in many cases had different advisers produce plans that were rated anything from ‘very good’ to ‘very poor’ (see table).
The chief executive of boutique financial planning group Centrestone Wealth Management, Robert Keavney, says some of the larger providers of financial planning advice may have suffered from attempts in recent years to grow their distribution capacity too quickly.
“There ought to be absolutely no surprise that there’s a huge variation in the quality of financial planners,” he says.
“We’ve had an industry in which thousands of planners have been recruited rapidly and put out into the marketplace and the average number of years of experience among them has really come down — you can’t pull thousands of new people in every year and think they are all highly trained, skilled people.”
Tom Collins, of theTom Collins Consultancy, says the lack of consistency is a serious threat to the role of large distribution forces in the financial planning industry.
“The fact that the plans are of inconsistent quality is a major problem for the large dealer groups because it impacts on their brand — if there’s one thing a brand implies, it’s consistency,” he says.
“In an ideal world, if I walk into any advisory office with the same brand, I should have the same experience. I think one of the most worrying issues for the big groups is that there is no brand power out there because there is no consistency.”
Such comments are forcing the larger distributors of financial planning advice to take note.
The executive general manager of financial planning and advice at the Commonwealth Bank, Geoff Austin, says some of the criticism emanating from the ACA/ASIC report’s findings was “a deliberate shot at the banks”, but that the report itself should be viewed as a “wake-up call to the industry”.
“TheFinancial Planning Association(FPA) has come out and said some of the reporting of the issues coming out of the report was unfair and I have some sympathy with that. But I also have sympathy with the fact that there are lessons to be learnt here,” Austin says.
“The larger groups tend to be where people who are new to the industry start out … and we think there is a reasonable correlation between experience and the quality of advice.
“Over the last 12 months, we have increased the level of training to new planners. We have effectively raised the bar. But is that high enough? We will look at raising the bar further.”
The larger distributors of financial planning advice will have to move quickly.
The Australian Securities and Investments Commission (ASIC) has already announced it will examine each of the groups named in the report as having produced ‘very poor’ plans.
This will include planning groups owned by some of the largest distributors of financial advice in the country, such as the ANZ Bank, the St George Bank, AMP,AXAandTower.
The regulator is also conducting a surveillance campaign of certain bank, fund managers and dealer groups, focusing specifically on how the commissions they pay to their tied financial planners affect the quality of financial planning advice.
“The results [of the report] indicate that the industry has the capacity to produce good advice, but they are not doing it on a consistent basis. That is why we will be talking to a lot of groups on how they can improve,” ASIC executive director of consumer protection Peter Kell says.
