A recent survey conducted by the corporate watchdog found that only 3% of financial plans were ‘good’ for clients.
The Australian Securities and Investment Commission reviewed 64 financial plans aimed at retirees and pre-retirees. They presented their findings to Parliamentary Joint Committee on Corporations and Financial Services last Wednesday on the Future of Financial Advisor reforms.
“Retirement-related advice has produced disappointingly high levels of poor quality advice,” said ASIC commissioner Peter Kell.
Why did the industry score so poorly?
Kell claimed that planners did not give their clients realistic expectations about how their retirement savings would affect their lifestyle.
Whilst 61% of the reviewed plans were deemed ‘adequate’, Mr Kell said that much of the advice given was too generic for clients.
Conflicts of interest remained a problem for the industry. “Often a client will go to see an adviser wanting to know when they can retire and instead leave with a new accumulation product,” Mr Kell said.
Mister Kell stated that 35% of advice on retirement was poor during the public hearing. The Financial Planners Association (FPA), in response, made a written statement.
“This underscores the critical importance of the need to continue raising the professional standards of financial planners, and restricting the use of the term ‘financial planner’ so that only those who meet certain levels of ethics, qualification and professional standards can call themselves as such”.
What’s to come: FoFA
ASIC’s survey of’shadow shoppers’ is in advance of the Future of Financial Advice reforms. There will be a ban on conflict-related remuneration arrangements such as volume and commission payments for recommending specific investment products. Planners will be legally obliged to place their clients’ interests ahead of their own.
Each year, clients will need to opt-in to continue receiving advice – a reform opposed by the FPA. Clients will not be charged percentage-based asset management fees unless they agree to pay them for ungeared investments.
Trail commissions are to be stopped starting July 2013. These are payments made by customers of large super funds to financial planners, although many of these customers don’t receive the financial advice. Trail commissions account for around 35% in the industry’s revenue.
Whilst the FPA broadly supports the reforms, CEO Mark Rantall highlighted the need for greater study on the reform’s potential costs to the industry.
How do you find a competent financial planner?
FPA should be your first stop if you feel that you require professional advice.
Look for Certified Financial Planners (CFP) with a post-graduate degree. This is the highest level and most widely recognized qualification. All financial planners must hold an Australian Financial Services Licence that’s issues by ASIC.
You should ensure that they are allowed to offer advice on a variety of financial products and have a track record in providing advice during economic downturns. Some advisors are specialised in certain areas, so that could be a better option for you if you’re concerned about a particular issue, such as self-managed super.
Even though the FoFA reforms are on their way, it’s still important to find out who the planner works for and ask them outright what agreements they have with product providers. These details should be included in the Financial Services Guide. For impartial advice only, you should pay a fee-for service basis. You will receive investment advice from your planner and can purchase the products yourself.