The chief executive of the Australian Consumer Association (ACA) Lousie Sylvan has criticised the financial planning industry for low levels of disclosure and for the falling levels of independent advice.
Speaking at theFinancial Planning Association(FPA) Sydney chapter lunch on Friday, Sylvan said the levels of independent advice was a ‘dis-improving’ situation and that the ownership of advisers was a concern for the ACA as a consumer association.
Sylvan said the main concern was the level of bank ownership but the level of trail commissions and equity incentives were described as “perverse in some cases and of concern to consumers”.
While the Financial Services Reform Act (FSRA) will clear up some of the problems with disclosure, consumers were still confused when it came to comparing fees and charges according to Sylvan, and it would take further regulatory action for this to happen.
“It is not possible to get sufficient and comparable disclosure without significant prescription,” she says.
Sylvan also said that competition in the industry had focused on the ‘bells and whistles’ of products which had lead to a concentration of products which, driven by the dominance of intermediaries, had caused undue competition on the supply side and not on the demand, or consumer side of financial services.
The recent high profile collapses of groups such as One Tel, HIH and Enron in the US had also led to a loss of confidence in some parts of the financial services industry and planners are now faced with a good opportunity to position themselves as experts in providing advice.
The reason for this, according to Sylvan, is that consumers still find financial services difficult to understand and it was wrong to consider the educated investor as the benchmark. Rather the level of understanding of the average financial services consumer should be considered.
This was brought out with an example of consumers who stated they would prefer a planner remain independent through charging a fee paid by the consumer but when the fee was deferred in the form of a commission that was also deemed acceptable.
Furthermore consumers were unaware of the cost of a financial plan, which Sylvan said was about $1200 on average, and should cover the full needs of the clients.
“Consumers don’t see any value in that figure. There is a need to change their attitude because none of them see independent as being equal with commission based services,” she says.
But it wasn’t all bad news for the industry with Sylvan praising the level of regulation and complaints and redress systems in place stating they were quick, cheap and effective but could still improve at the dealer group level.
