ICAA Media Release

ASIC shadow shopping results highlights need for fee-for-service approach

There is three to six times more chance a consumer will receive unreasonable superannuation advice where the adviser has a conflict of interest based on the remuneration structure or had a fund associated with a licensee, according to the results of the Australian and Securities and Investments Commission (ASIC) shadow shopping survey announced today.

The results confirm the Institute of Chartered Accountants in Australia's position that because consumers often hold unquestioning trust in the financial advice they receive, it is imperative that consumers receive a service that is not influenced by conflicting interests.

The survey assessed 306 examples of advice given to real consumers and found that disclosure of conflicts of interest provides only limited protection, and therefore it is also important to ensure the consumer understands that there is no incentive for planners and advisers to favour one investment product over the other.

"The research highlights that compliant advice was higher where there was no conflict of interest so consumers can be confident of the advice they receive. It is essential that advice is given independently on merit and knowledge rather than by payment structure," said Hugh Elvy, Manager Financial Planning and Superannuation, Institute of Chartered Accountants in Australia.

"The Institute will continue to be active in advocating a fee-for-service approach, made more relevant recently with the collapse of Westpoint where some commissions were reported to be as high as 10%. The Institute issued APS 12, a Joint Financial Advisory Standard, in October 2005, advocating a fee-for-service approach as being more consistent with the principles of professional independence," Elvy continued.

The survey found while the level of strategic financial advice given to consumers has improved, 16% of the 306 examples of financial advice given to the consumers surveyed breached the financial service regulations given the clients' needs, as required by law.

"It is very encouraging that the survey results show consumers are receiving more helpful strategic advice, an area that accountants historically focused upon providing. But the survey highlights there are still compliance gaps that need to be addressed and closely monitored," said Elvy.

The survey identified very few instances of unlicensed people who should not have given superannuation advice including accountants. It is essential the industry maintains a professional reputation and the Institute will be working closely with ASIC to further develop an education program for members to re-clarify some of the key issues raised in the report and to ensure members fully understand the issues involved in operating within the Financial Services Regulation. In addition the Institute will be working with ASIC and Treasury to clarify some of the practical difficulties for unlicensed accountants.