Cautious, precise, demanding. While such words conjure up a less than favourable image, they are characteristics attributable to every one of us, as we assume the role of a consumer.
And as a consumer in the financial services industry, we have expectations when it comes to investment products, performance and service levels, which are often passed onto financial advisers.
So what will the year ahead hold for consumer expectations in the financial planning industry? And how will advisers manage these expectations?
In light of legislative changes and the state of the investment market, the next 12 months is set to re-define the professional landscape of the Australian financial planning industry and subsequently alter the expectations of consumers.
According to the Australian Securities and Investments Commission (ASIC), the past 12 months has been a period that has exposed a different side of the industry to the public, and prompted key questions of disclosure.
“Experiences in the past 12 months within investments has heightened consumer focus on activities and disclosure by boards about the performance of companies,” says ASIC consumer protection executive director Peter Kell.
Highly public collapses such as that of HIH Insurance, One.Tel and Pasminco mining have all served to heighten the awareness of financial services consumers and increased the demand for greater transparency in the presentation of information, Kell says.
As such, consumer sentiment and industry expectation has flowed on to the direct providers of financial services, the planners.
“It’s safe to say current market conditions have increased the degree of cynicism consumers feel towards financial services providers. This is an inevitable feature of downturns,” Kell says.
An increase in complaints has also registered the growing dissent in consumer sentiment and spurred on greater consumer expectations of service providers.
Figures from the ASIC 2000/01 annual report reveal a 26 per cent increase from the previous year in the number of consumer complaints relating to financial and corporate activities. The number of complaints is expected to rise again this year Kell says, in areas more familiar to consumers such as disclosure and inappropriate advice.
The Financial Industry Complaints Service (FICS) also registered an increase in complaints last year, according to FICS chief executive Alison Maynard. However, while the number of complaints did double in 2001, FICS expects the number to remain consistent in 2002.
Maynard says while last year’s increase in complaints was due to greater consumer awareness in the complaints body, the proportion of complaints in relation to real industry activity is still small.
“The three main types of complaints are: inappropriate advice, misrepresentation and disclosure, and services issues. Inappropriate advice will still top the list but our indicator shows there is still a low number of disputes in comparison to what is going on in the industry,” Maynard says.
While disclosure is also a key area of concern for the Australian Consumers Association (ACA), finance policy officer Catherine Wolthuizen says a number of trends highlight those issues continually important to consumers and that will remain so in the new year.
She notes the widely discussed issues of adviser remuneration and commissions that continue to strike a chord with financial planning consumers, as well as the issue of superannuation.
“The ACA identified super as a priority for this year, even before the Government put it on the agenda, looking at adequacy, cost, charges, the whole range of issues,” Wolthuizen says.
“There is also a big push for greater disclosure, and the Association of Superannuation Funds of Australia has made some positive measures to boost consumer confidence and understanding, and the ACA is watching closely and supporting this push.”
The ACA has also identified consumer concern over a range of investment products and is involved with ongoing product assessments. Currently, the ACA is addressing consumer concerns on margin lending.
Inextricably tied to consumer expectation and the level of complaints is the degree of consumer knowledge and awareness. In fact, a number of industry organisations have highlighted consumer education as a key issue for them in 2002 and have instigated a number of programs to bring education into focus.
The ASIC consumer education strategy launched last October is one such initiative.
“Consumer education in the next 12 months is a strong priority for ASIC, and we continue to look for opportunities to work with others, such as community, consumer and industry groups,” Kell says.
Two specific areas of focus in ASIC’s consumer education strategy are the education of retirees and creating greater awareness of money scams.
“One area of importance is the increasing number of people moving into retirement and the growth in demand for advice as the ageing population increases. Also critical now is to educate people about scams, as there seems to be a proliferation of attempted scams,” Kell says.
The introduction of the Financial Services Reform (FSR) Act in March will also pave the way for consumer education programs to help consumers understand the reform and what to expect from their financial planners.
Kell says work will also be done in raising the profile of FIDO, ASIC’s consumer Web site introduced 12 months ago. The site is currently registering about 40,000 hits a month and he says this figure is growing rapidly as consumer awareness strengthens.
“FIDO is fulfilling its role but we want to raise our profile as a consumer protection regulator,” Kell says.
FICS will also be tackling the issue of consumer education this year.
“FICS will have a high emphasis on communicating to customers and there will be a new emphasis this year on people from non-English speaking backgrounds,” Maynard says.
She says while FICS is mostly involved in community forums, it is interested in direct consumer education programs. Maynard says FICS has approached ASIC about participating in the Association’s investor forums this year.
Taking a slightly different approach, the ACA will focus on its financial planning survey, a six-month project scheduled for the first half of the year, to analyse the service standards of financial planners.
Wolthuizen says the ACA will use the survey to identify areas where greater education is needed and help to uncover information on service levels, and consumer expectations and satisfaction.
“We get a lot of questions about the standard of advice and varying reports on customer satisfaction. It will be interesting to see the changes since the last survey,” she says.
