06-104 Survey finds quality of advice on super still needs improvement
Thursday 6 April 2006
ASIC today released the results of its Shadow Shopping Survey on Superannuation Advice.
The purpose of the survey was to assess whether the advice given to consumers after the introduction of Super Choice complied with the law.
The survey assessed 306 examples of advice given to real consumers who were recruited by Roy Morgan Research. The survey covered 259 individual advisers who were representatives of 102 Australian financial services licensees.
Overall, the survey revealed a wide range in the quality of advice — from highly sophisticated advice at one end, with basic but valuable advice in the middle, through to negligent and inappropriate advice at the lower end.
‘The most positive finding was that the ‘strategic’ advice provided by advisers was generally helpful to consumers’, said ASIC Chairman, Mr Jeffrey Lucy. This advice covered issues such as asset allocation, how much to contribute to superannuation and tax advantages.
‘However, the survey found the financial advice industry still has significant work to do before the quality of advice will be consistently at a level that ASIC and consumers would regard as acceptable.’
The survey revealed that:
- 16% of advice was not reasonable, given the client’s needs (as required by law) and a further 3% was probably not reasonable.
- where consumers were advised to switch funds, a third of this advice lacked credible reasons and risked leaving the consumer worse off.
- unreasonable advice was three to six times more common if the adviser had an actual conflict of interest over the advice given to the client. These conflicts were commonly created where either the adviser stood to get higher remuneration if the recommendation was followed, or the recommended product was associated with the adviser’s licensee.
- In 46% of cases, advisers failed to give a written Statement of Advice (SOA) when one was required. In a fifth of those cases, however, the advice was verbal advice to stay in an existing fund.
ASIC will be conducting specific follow up action with 14 licensees in response to issues raised in the survey. The survey raised particular concerns about the ability of these licensees to ensure their representatives are complying with the law.
ASIC will be sending the survey results to each licensee whose advisers participated in the survey. ASIC expects that these licensees will act quickly to fix any problems identified in the survey.
Mr Lucy said the survey should send a clear message to those who create the working environment for advisers – the licensees and financial conglomerates. ‘The survey shows that, while some progress has been made, the cultural changes mandated by the Financial Services Reform Act are not happening quickly enough.’
Common problems areas seen by ASIC in the survey included:
- advisers not investigating the client’s current super fund before recommending a new fund;
- advisers overlooking the client’s insurance within an existing super fund;
- SOAs not adequately disclosing the reasons for recommended action; and
- SOAs not adequately disclosing the consequences of switching super funds.
A striking finding of the survey was that consumers were rarely able to detect bad advice. ‘This shows the importance of advisers ensuring their recommendations are properly researched and appropriate for the client’s needs,’ said Mr Lucy.
Background
The Shadow Shopping Survey involved Roy Morgan Research recruiting a random sample of participants and gathering examples of their superannuation advice between June and December 2005.
Roy Morgan Research said that the sample size was sufficiently robust to draw conclusions about the quality of the advice received:
'Roy Morgan Research has confidence in the overall methodology and has no reason to doubt that the sample drawn reflects the underlying population of consumers in the market for financial advice that includes advice about superannuation.'
The advice was then assessed for legal compliance. This assessment was undertaken by a team of ASIC staff, including people with financial planning qualifications and experience.
End of release
Download the report
Read the Chairman's five key points
FIDO Website: Printed 07/31/2010
