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Tuesday 11 February 2003

03-037 Financial planner survey results released

The Australian Securities and Investments Commission (ASIC) and the Australian Consumers’ Association (ACA) today released their joint survey of the quality of advice provided by financial planners.

In the third survey of its kind in the past eight years, genuine customers were recruited and obtained 124 financial plans from advisers around the country. Panels of industry experts then assessed whether the plans met legal requirements and ‘good practice’ standards for a comprehensive financial report.

‘The overall results of the survey show that many people aren’t getting the quality of advice they deserve. This is a wake-up call to the financial advisory industry that significant improvements are needed’, ASIC Executive Director of Consumer Protection, Mr Peter Kell said.

‘The “good practice” standards which were part of the assessment of the plans are in fact standards that have been developed by the industry itself. They should be in everyday use, given that the industry handles many millions of dollars of people’s savings. It’s disappointing to see that these standards are not being achieved consistently’, Mr Kell said.

‘In the past two years, ASIC has removed 62 financial advisers from the industry, and a further 10 have received jail terms. We are carefully assessing the information from the survey to identify what future actions we will take’, Mr Kell said.

‘ASIC is implementing a range of strategies to address the shortcomings identified by the survey. For example, the survey showed that, on average, the plans given by stockbrokers scored poorly compared to other industry sectors. As a result, ASIC is today announcing a campaign designed to improve advice standards in the stockbroking industry’, Mr Kell said.

Mr Kell said that ASIC is also:

  • meeting with all the firms who gave a ‘Very Poor’ plan to ensure that weaknesses are promptly rectified;
  • requiring some licensees to certify their compliance with relevant legal obligations (including the ‘know your client’ rule and commission disclosure); and
  • working with the Financial Planning Association to address some of the poor communication standards that the survey has revealed.

‘This is a hugely important industry for Australians, especially retirees, and they deserve comprehensive, unbiased advice from efficient and effective advisers’, Mr Kell said.

A copy of ASIC’s detailed report on the survey is available from www.asic.gov.au

Background information – Quality of Advice Survey

Overall grades

Total

124

100%

Grade

No. of plans

Percentage

Very Good

2

2%

Good

23

19%

OK

36

29%

Borderline

30

24%

Poor

21

17%

Very Poor

12

10%

Problem areas

‘Poor’ and ‘Very Poor’ were clearly inadequate. ‘Borderline’ plans had some significant weaknesses.

Common deficiencies in plans included:

  • failing to provide an Advisory Services Guide (15% of planners);
  • failing to show how the recommended strategy and action was appropriate for the client;
  • being hard to read and ‘padded’ with reams of generic information;
  • some planners ignored key client requirements and didn’t explain why;
  • higher-fee investments (such as some wrap accounts and master trusts) were recommended without showing why these were better than cheaper alternatives; and,
  • recommending a switch without showing how new investments would be better than existing investments.

Some firms produced both good and poor plans. This inconsistency clearly indicates that firms need to pay more attention to training, compliance procedures and quality control.

Positive outcomes

Some improvements have been made since the last survey in 1998, including small improvements in the areas of disclosing commission and assessing client risks.

The survey findings also reinforce the messages in the ASIC/FPA free booklet Don’t Kiss Your Money Goodbye that contains invaluable advice for choosing and using a financial planner. It’s available from ASIC’s Infoline on 1300 300 630 or on our consumer website at fido.asic.gov.au.

Don’t Kiss Your Money Goodbye outlines how people can get better advice if they:

  • do some preparation about their needs and goals,
  • are prepared to pay a fee for advice, and
  • ask why the recommended action is better than other options.

Implications for the Financial Services Reforms

While plans were assessed against existing legal requirements and not the FSRA legislation, ASIC notes that many planning firms will need to improve their written advice to meet upcoming requirements under the new Financial Services Reform Act, as some good practice standards will become legal requirements by March 2004.

Acknowledgements

ASIC would like to thank the consumer participants, the expert judges and the FPA for their assistance with the Quality of Advice survey.

End of release

Download a copy of the report 

Adviser survey - ComCorp plan gets upgraded

 

Last updated: 11/02/2003 12:00