ASIC has released Report 279 Shadow shopping study of financial advice (REP 279) which sets out the findings of ‘shadow shopping’ research which examined financial advice given to people to help them plan for retirement.
The report concluded that over a third of the advice examples were not of good quality (39%).
ASIC regarded advice as poor if it was overly product focused and not strategic enough to help clients develop a realistic and achievable plan for their retirement and make the most of their financial resources taking into account their circumstances and attitudes to risk.
The following problems were common in the advice ASIC graded as poor or inadequate:
- Inaccurate or incomplete investigation of the client’s personal circumstances
- Recommended strategies did not address the client’s needs or objectives – this included the failure of advisers to address areas that didn’t directly involve the sale of investment products.
- Conflicted remuneration structures, such as product commissions and percentage asset-based fees, impacting on the advice and recommendations, and on the quality of advice.
- Poor scoping of advice – some advisers excluded crucial topics, such as clients’ debts, from the scope of the advice, or failed to clearly explain the limitations of the advice.
- Failing to provide appropriate justification for switching recommendations – sometimes the features that the client would lose as a result of changing products were not disclosed. In other instances the ‘benefits’ of the new product were not actually advantageous or useful for the client.
- Poor communication in the Statement of Advice.
- Failure to provide cash flow projections to show how the recommended strategy would meet the client’s income and expenditure objectives.
- Failure to consider how long the client’s money would last in retirement.
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Posted 2nd April 2012 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms