Australia’s financial planning industry has failed to provide adequate advice to end clients, with early results of ASIC’s Shadow Shop Survey revealing only 3 per cent of advice plans provided were graded as good.
ASIC commissioner Peter Kell revealed the figure at yesterday’s public hearing of the Parliamentary Joint Committee inquiry into the government’s advice reforms.
Kell said of the 64 financial plans obtained by ASIC from around Australia during the survey, around 36 per cent or 23 of the plans were graded as poor.
He said around 61 per cent or 39 plans were graded as adequate, with only 3 per cent or two plans graded as good.
ASIC was still working through the findings of the survey, however, there were some broad themes in the results that stood out, he said.
“There was a consistent failure by advisers to talk to clients about what they can realistically fund out of their retirement savings,” he said.
As an example, he said only a few of the advisers undertook rigorous retirement income projections, and many plans contained “woefully inadequate projections with poor or unrealistic technical assumptions”.
“There was too much generic and pro-forma advice. There may have been sufficient information to make the advice ‘adequate’, but in many cases it was not particularly helpful for the client and did not fully cover the client’s circumstances,” he said.
“As previous surveillance exercises have demonstrated, conflicts of interest are a problem. Often a client would go to see an adviser wanting to know when they can retire, and instead leave with a new accumulation product.”
These examples provided a clear indication of the need for reform, he said.
“The FOFA reform package will help improve these outcomes. Promoting the interests of clients through a best interests duty will drive advice that is better focused on the actual needs of the client,” he said.
“The removal of a range of conflicted forms of remuneration will also help ensure that the interests of the client are given priority. These reforms will also improve communication between advisers and clients, as well as providing a greater focus on strategic financial advice.
“Importantly, these reforms should not just reduce the incidence of poor advice, but also help lift ‘adequate’ advice into the ‘good’ category.”
As well as FOFA, there needed to be efforts to raise industry professional and ethical standards through a new assessment and professional development framework for advisers, he said.
“As I have said, ASIC is still analysing the results of the Shadow Shop Surveillance, and will be providing a more detailed report in March,” he said.
“We are happy to provide an additional briefing to the committee if desired.”
Last year, ASIC undertook a Shadow Shop Surveillance aimed at testing the quality of advice provided to consumers in or nearing retirement.
The regulator used an expert panel that included a range of industry practitioners to help assess many of the plans.
