12-55MR ASIC releases full report on retirement advice shadow shopping research
Tuesday 27 March 2012
ASIC today released the full findings of ‘shadow shopping’ research which examined financial advice given to people to help them plan for retirement.
The purpose of Report 279 Shadow shopping study of financial advice (REP 279) was to investigate the quality of retirement advice provided and people’s experience of obtaining financial advice.
ASIC’s research found that:
ASIC Commissioner Peter Kell said, ‘The results of ASIC’s shadow shopping research demonstrate that there is scope for significant improvement in the provision of good quality retirement advice in Australia. Our research found there are several areas where the financial advice industry needs to lift its game.
‘Advisers are important gatekeepers who have a key role to play in helping consumers plan and manage their finances. This underlines the importance for the industry to remove conflicts of interest and improve overall professional standards to ensure that their client’s trust is not misplaced,’ he said.
Mr Kell said, ‘Financial advisers need to provide realistic and client focused communication about people’s retirement prospects including how long their money will last, even if this can on occasion be a challenging conversation.’
‘Too much poor advice provided to our shadow shoppers was overly product focused and not strategic enough to help clients develop a realistic and achievable plan for their retirement and make the most of their financial resources taking into account their circumstances and attitudes to risk,’ he said.
ASIC’s research also found that people have difficulty in assessing the quality of the financial advice they have received. Participants in the study rated their advisers and the advice they received highly, even when they received poor advice.
Mr Kell said, ‘Consumers’ difficulties in assessing advice quality are not surprising. People who thoroughly understand personal finance are less likely to need a financial planner.’
ASIC’s report points to a range of actions that are being taken to help improve the quality of advice. The recent Future of Financial Advice Reforms will play a key role in lifting standards in the industry and putting greater focus on the client. Major industry efforts to improve standards, such as through codes of conduct, can also make an important contribution to addressing some of the industry weaknesses identified by this research. In addition to this ASIC will also:
- over a third of the advice examples were poor (39%)
- there were only two examples of good quality advice (3%)
- the majority of advice examples reviewed (58%) were adequate.
Consumers can find more information of finding a financial adviser at moneysmart.gov.au.
- work with the financial planning industry associations and individual firms to provide more information on the findings in the report to help them focus on areas that will improve advice quality.
- review the Getting Advice booklet and further refine MoneySmart website content to ensure that consumers are well equipped to find the right financial adviser.
This project looked at 64 examples of personal financial advice given to real consumers. Participants sought advice of their own initiative and found their own adviser. Our sample included advice examples from 36 different Australian Financial Services licensees.
A 12-person expert reference group comprised of industry representatives, a representative of the Financial Ombudsman Service and a representative of ASIC’s Consumer Advisory Panel provided guidance and oversight of the advice assessment process. ASIC analysed the advice examples in this research using quality of advice benchmarks developed in consultation with this expert reference group. Each advice example was graded good, adequate or poor based on these benchmarks.
The following problems were common in the advice we graded as poor or adequate:
Advice rated as adequate also had good elements, but fell short due to significant weaknesses in the recommended strategy or products. Poor quality financial advice failed to meet the requirements of the Corporations Act that the adviser must have a reasonable basis for their advice. The report includes real examples of both good and poor advice, providing useful guidance to industry.
Download Report 279
- Inaccurate or incomplete investigation of the client’s personal circumstances
- Recommended strategies did not address the client’s needs or objectives - this included the failure of advisers to address areas that didn’t directly involve the sale of investment products.
- We saw examples of conflicted remuneration structures, such as product commissions and percentage asset-based fees, impacting on the advice and recommendations, and on the quality of advice.
- Poor scoping of advice – some advisers excluded crucial topics, such as clients’ debts, from the scope of the advice, or failed to clearly explain the limitations of the advice.
- Failing to provide appropriate justification for switching recommendations – sometimes the features that the client would lose as a result of changing products were not disclosed. In other instances the ‘benefits’ of the new product were not actually advantageous or useful for the client.
- Poor communication in the Statement of Advice.
- While in some cases there were valid reasons, approximately one third of advice did not provide cash flow projections to show how the recommended strategy would meet the client's income and expenditure objectives. And approximately 44% of the advice statements did not consider how long the client's money would last in retirement.
Shadow shopping study of financial advice
ASIC Website: Printed 08/23/2014