CONSUMERS struggle to judge whether they have received poor quality financial advice, the results of a "shadow shopping" sweep by the corporate regulator have revealed.
The Australian Securities and Investments Commission late yesterday unveiled the final results of a secret exercise testing the standard of retirement advice around the nation, revealing a stark contrast between how consumers felt about the advice they received and the standard of that advice.
The 64 consumers that took part were overwhelmingly happy with the advice provided by their financial advisers, with 86 per cent rating it as "good quality" and just 5 per cent rating the advice provided as poor. About 81 per cent said they trusted the advice they received "a lot".
But 39 per cent of the retirement advice examples, when later reviewed and assessed by ASIC analysts, were found to be of poor quality, with 58 per cent rated as "adequate" and just two rated as "good".
"The research highlights the important position of trust that advisers are in when giving financial advice," ASIC said. "Because it is difficult for clients to assess the quality of the advice, it is crucial that licensees ensure that their advisers provide good quality advice."
The plans were provided to consumers aged between 50 and 68, who were seeking financial advice for their retirements. In 78 per cent of the advice examples, the adviser was paid through product commissions or fees based on a percentage of the clients' assets.
The release of the shadow shopping report follows last week's passing of the government's Future of Financial Advice reforms, which included a ban on commissions and a requirement for planners to act in their clients' best interests.
ASIC said the results of the sweep some of which were unveiled in January showed "scope for significant improvement". "Our research found there are several areas where the financial advice industry needs to lift its game," ASIC commissioner Peter Kell said.
He said it was not surprising that consumers had difficulty assessing the advice they received, saying those who understood personal finance were less likely to need a financial planner.
Frequently Asked Questions about this Article…
What was ASIC’s “shadow shopping” sweep testing about retirement advice?
ASIC carried out a secret “shadow shopping” sweep to test the standard of retirement advice provided around Australia. The exercise compared how consumers felt about the advice they received with assessments made later by ASIC analysts.
How many people took part in the retirement advice review and what were their ages?
The sweep involved 64 consumers aged between 50 and 68 who were seeking financial advice for their retirements.
What did consumers say about the quality and trustworthiness of the financial advice they received?
Consumers were overwhelmingly positive: 86% rated the advice they received as “good quality,” only 5% rated it “poor,” and about 81% said they trusted the advice “a lot.”
What did ASIC’s later assessment find about the actual quality of the retirement advice?
When ASIC analysts reviewed the same advice examples, 39% were found to be of poor quality, 58% were rated as adequate, and only two examples were rated as good.
How were advisers typically paid in the retirement advice examples reviewed by ASIC?
In 78% of the advice examples, the adviser was paid through product commissions or fees based on a percentage of the client’s assets.
How do the government’s Future of Financial Advice (FOFA) reforms relate to commissions and adviser duties?
The FOFA reforms, passed around the time of the report, included a ban on commissions and introduced a requirement for planners to act in their clients’ best interests.
Why is there concern about consumers’ ability to judge the quality of financial advice?
ASIC’s research highlighted a gap: many clients rate and trust advice highly but struggle to assess its technical quality. ASIC noted this trust puts advisers in an important position and makes it hard for clients to spot poor advice.
What did ASIC say needs to happen to improve retirement advice quality?
ASIC said there is “scope for significant improvement,” with commissioner Peter Kell noting the industry needs to lift its game. ASIC emphasised that licensees must ensure their advisers provide good-quality advice.
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