Shadow shopper: one in five advisers fail

Financial planners have received another bad rap from the corporate regulator, with its latest shadow shopping report concluding that close to one in five advisers gave unlawful advice.

The Australian Securities and Investments Commission (ASIC) survey of 306 examples of superannuation related advice found that 16 per cent were non compliant with current legislation, and that 3 per cent were “probably” non compliant.

The nationwide survey of 102 financial planning dealerships conducted by Roy Morgan research between June and December 2005 also found 46 per cent of planners failed to give their client a written Statement of Advice (SOA) where one was required.

In the 124 cases where consumers were advised to switch funds, a third of this advice “lacked credible reasons and risked leaving the consumer worse off”.

“The survey has clear implications for the licensees and the financial conglomerates who create the working environment for advisers. While some progress has been made, the cultural changes mandated by the Financial Services Reform Act are not happening quickly enough,” the report said.

Unlawful advice was three to six times more common if the adviser had a conflict of interest over the advice given to the client.

Common breaches included advisers not investigating a client’s current super fund before recommending a new one, advisers overlooking life insurance within an existing super fund, and SOAs not clearly disclosing the reasons and implications of a super switch.

Fourteen of the 102 Australian Financial Services Licence holders examined in the shadow shopping survey will be the subject of follow-up action by ASIC. These dealerships are both large and small.

Commenting on the results in a statement released this morning, ASIC chair Jeffrey Lucy said:

“The survey found the financial advice industry still has significant work to do before the quality of advice will be consistently at a level that ASIC and consumers would regard as acceptable.”

He did, however, note that some positives came out of the report.

“The most positive finding was that the ‘strategic’ advice provided by advisers was generally helpful to consumers.”

ASIC described this advice as covering issues such as asset allocation and tax planning.

The survey also found plenty of examples of “highly sophisticated” and “basic but valuable” advice.

The Financial Planning Association meanwhile, has said in a statement that the survey “reflects the significant improvements made by Australian financial planners in recent years”.

“Eighty per cent of clients were satisfied with the advice they received, 80 per cent of super advice had a reasonable basis and was compliant,” FPA chair Corinna Dieters said.

She said in 73 per cent of cases there was proper disclosure of adviser remuneration with the potential for conflicts of interest.

“These outcomes demonstrate the majority of financial planners share ASIC’s determination to ensure that quality, affordable financial advice is available to Australians,” said Dieters.

She did however concede that there were areas which needed “the continued attention of ASIC and of the financial planning sector”.

“In particular, ASIC’s concerns about the apparent correlation between unreasonable advice and advisers with conflicts of interest has been addressed in the FPA’s recently adopted Principles to Manage Conflicts of Interest, which will enable members to better understand and manage their potential and actual conflicts.”

- For a full wrap up of the report see Money Management’s 13 April edition