Retirees value advice, but
ASIC says quality is poor

New research from Investment Trends (IT) reveals that financial planners believe about a third of clients will not achieve their retirement income goals. But it has also found that pre-retirees who use a planner’s services are more likely to feel they are on track to meet their targets.

The IT survey, of 1027 planners, comes a day after the Australian Securities and Investments Commission (ASIC) revealed the full findings of its retirement planning shadow shopping exercise, in which it outlined why more than a third of financial plans reviewed were deemed “inadequate”.

The Investment Trends survey of planners is consistent with surveys it has conducted of investors themselves. In its last investor survey, 28 per cent of respondents said they thought they would fall short of their retirement targets.

The IT survey revealed that “planners anticipate that 33 per cent of their clients aged under 75 will be dependent on the Age Pension for more than half of their income when they retire.”

It said this proportion would grow to 54 per cent “by the time they are aged between 84 and 95”.

The survey says that planners “are not shy” of giving tough advice: it says that 69 per cent of pre-retiree clients had been advised to contribute more to super; but 26 per cent had been advised to postpone retirement; and 13 per cent had been advised to downsize their home.

Planners have called for more support form product providers to help educate the public better about retirement related issues.

But there is good news in the survey: pre-retiree clients who use the services of a planner are more likely to say they are on-track to reaching their retirement goals. About 42 per cent of advised clients say this, compared to 23 per cent of non-advised clients.

In its report released on Wednesday, ASIC said that only 3 per cent of plans (a total of two plans) were deemed “good quality” in its recent shadow shopping exercise. ASIC said 58 per cent of plans were “adequate”.

In its report, ASIC said that “good quality financial advice improves a client‘s financial situation”.

This is not necessarily confined to a monetary improvement, but encompasses a person’s preparedness for the future

“This is not necessarily confined to a monetary improvement, but encompasses a person’s preparedness for the future,” it said.

ASIC said it reviewed financial plans “using an advice review template based on quality of advice benchmarks”.

“These benchmarks were developed in consultation with our expert reference group,” it said.

“This group comprised 12 nominees from advice groups and superannuation funds nominated by the Financial Planning Association, Association of Financial Advisers, and Association of Superannuation Funds of Australia. The reference group also had a nominee from the Financial Ombudsman Service and a nominee from ASIC’s Consumer Advisory Panel.”

The regulator said that “good” advice had “a clearly defined scope, and assisted the client to form realistic and measureable objectives about their retirement and to implement strategies to try to achieve them”.

“We saw evidence of multiple strategies being compared and evaluated, good budgeting and cash flow projections, and realistic discussions about what clients could fund in their retirement.,” it said.

It added that “good written and personal communications” help to ensure that clients are aware of their options, while good SOAs were logical, well structured and easy to understand.

Advice that ASIC regarded as “adequate” met the requirements of s945A of the Corporations Act.

“Many of the advice examples that were rated as adequate had good elements, but the overall advice generally fell short of being good because of a key problem with the recommended strategy or products,” it said.

“Within the grade of ‘adequate’ there was a spread of quality, with some advice examples close to good, moving along the spectrum towards poor quality advice.

“This reflects the issue that quality of advice is, to some extent, a subjective measure, and that there will generally be a range of ‘appropriate’ advice for any particular person – however, some recommendations and advice will be of better quality than others.

“Poor advice failed to meet the requirements of s945A. All examples of poor advice have been referred to ASIC‘s Misconduct and Breach Reporting team for further investigation and review.”