The Australian Securities and Investments Commission (ASIC) shadow shopping research has uncovered an alarming inability among consumers to differentiate between good quality and poor quality advice.
A critical part of the shadow-shopping survey was 60-minute interviews with each of the shadow shoppers after they had received advice and reported back to ASIC.
The Financial Planning Association of Australia’s “Beyond the Shadow Shopper” road show in Brisbane yesterday (1 May) heard that 86 per cent of the shoppers interviewed by ASIC rated the advice they had received as “good”.
But ASIC rated only 3 per cent of plans as “good”. This suggests that consumers struggle to objectively rate the advice they receive. Instead, they assess quality according to “soft” issues – including the apparent trustworthiness of the adviser and whether the adviser asks them what appear to be the “right” questions.
In addition, there was evidence from the hour-long shopper interviews that consumers had not properly read the statements of advice (SoA) prepared for them.
The Brisbane road show heard that there’s a clear gap between how consumers think about the advice they receive and how ASIC views the quality of advice. It heard that clients fundamentally struggle to assess the advice they receive.
A consequence for financial planning firms of this disconnect is that if a firm assesses the quality of the advice it provides by surveying or questioning its own clients, it may receive a misleading picture of how good its advice is – and that picture may not match ASIC’s.
However, it also means that consumers are generally not equipped to challenge bad or misleading advice when it is presented to them.
The ASIC analysis of advice started with how well the planner assessed the shopper’s personal circumstances, then examined strategy and finally product recommendations.
Road-show revelations
In 16 cases, the investigation of the shopper’s personal circumstances was assessed as poor, and in 15 of those 16 cases the overall advice was consequently assessed as poor.
The strategic component of the advice had a major bearing on ASIC’s assessment of the overall advice. In every single one of the 25 plans assessed as poor, the strategic advice was assessed as poor.
And while the argument continues to rage about whether a sample of 64 financial plans can produce statistically significant results, the FPA’s chief professional officer, Deen Sanders, said the issues revealed by the shadow-shopping exercise were similar to the kinds of issues the FPA sees through its own surveillance and enforcement programs.
“The report highlights for us a couple of key issues that I think are central to the profession and central to the future of good advice,” he said.
“And the central glaring issue for us was, of course, the simple aspect of poor client investigation – the fundamental error of not engaging with the client’s real needs and goals clearly and sufficiently.
“And I emphasise those words quite differently: needs and goals. The two are not the same.
“For us, the clear and obvious hole in much of the strategy we saw was the issue of this up-front client investigation piece. And that’s certainly the exciting thing, we think, because that’s what the [FPA’s] code [of professional conduct] speaks to specifically.”
Alison Maynard, the investments, life insurance and superannuation ombudsman at the Financial Ombudsman Service (FOS) says the shadow-shopper results were fairly consistent with what she sees at the FOS.
“We are not looking for a consumer to have been given the best advice; we are looking for them to have been given reasonable advice in terms of the law and good industry practice,” Maynard says.
Neil Kendall, a financial planner with Brisbane-based firm Tupicoffs, and a panellist at the road show, said that the results of the ASIC research were “completely unsurprising”.
“If you don’t get the facts right at the beginning, you can’t produce good advice,” Kendall says.
“It’s interesting to highlight – and a lot of this isn’t, to me, rocket science – but it takes the impetus that you generate with the shadow-shopper campaign to re-engage in some of those things. I got a lot of positives out of it. I think it’s great that we’ve raised the benchmark from “adequate” to “good”… but if we want to be professionals we can’t produce [“adequate”] plans and expect to be [treated as] professionals.”
“The big positive I saw out of it is that ASIC has now given us a definition of what it believes is good quality advice. So for those of us who run internal checklists and ask whether we are doing a good job, here’s an opportunity to review those checklists that the regulator thinks [produce] a good quality job. What can I now do differently and do better that might make a difference to the quality of advice, and to how an external party might view that?”
The “Beyond the Shadow Shopper” road show moves to Sydney next week, before traveling to Melbourne, Perth and Adelaide, and to Hobart the following week.
Professional Planner is the official media partner of the event.
