There’s been a lot of noise in the last few days about theAustralian Securities and Investments Commission(ASIC)/Australian Consumers’ Association (ACA) “quality of advice” survey.
Wherever you turned, there was someone beating up financial planners. And what was it all about?
Well, the ACA recruited 53 consumer volunteers from their own ranks who each approached three financial planners — that’s a total of 159 — and asked them to prepare a “comprehensive financial plan”.
In other words, about 0.9 per cent of financial planners in Australia were asked to prepare a financial plan for ACA’s volunteers with the final result [because some planners declined to provide written plans] of 124 plans, which were assessed by a panel of experts.
Plans were condemned as “mediocre” and “lazy”. Not only that, the ACA could predict that if a consumer had acted on some of these plans they would “almost certainly not be as wealthy as they could be in their later life”.
While the ACA did not claim to be able to predict the future with 100 per cent accuracy, many financial planners would be more than happy to predict the outcome of their plans with ACA’s degree of certainty.
And on it went.
The track record of financial planners was “disgraceful” and the industry’s ongoing failure to improve its standards was “disgraceful”. It was all “depressing” and “worrying”.
When the dust settles and the ACA sets off on another crusade, and the media turns its attention to the next one in the queue seeking their 15 minutes of fame, there’ll be one organisation continuing its work of raising professional and educational standards, of educating consumers, and broadening programs, such as its National Quality Assessment Program, to ensure that high standards are adopted and maintained in the industry.
Yep — theFinancial Planning Association(FPA) — the professional body and industry association that represents about 80 per cent of the industry.
The FPA acknowledges that the sun will never go down on the work of “continuous improvement” in any industry that provides advice to clients.
But we remain confident about the soundness of the industry’s regulatory framework under the Financial Services Reform Act (FSRA).
Despite the ACA’s shrill claims — “The new law still contains weaknesses that could leave consumers vulnerable to exploitation by mediocre financial planners” — we do not need further major changes to our industry standards.
Financial planning is one of the most heavily regulated industries in Australia.
The FSRA was the culmination of a six-year process with significant community, industry and regulatory consultation before the Bill was enacted and became operational on March 11, 2002.
There was ample opportunity during the consultation phase for interested parties to contribute, lodge submissions and consult, particularly in relation to the fundamental foundations of the Bill — consumer protection and the competency levels of advisers. The ship has sailed.
The other thing that is bugging the ACA is super choice.
It seems ironic but the ACA’sChoicemagazine does not want consumers to have a choice. And, of course, it’s the fault of, you guessed it, financial planners.
Until consumers can be confident of receiving high quality advice from planners, according to the ACA, the introduction of super choice should be halted.
The FPA supports superannuation choice because it is a fundamental principal of a democratic society that individuals should have the ability to make decisions about their own affairs.
FPA research conducted in 2002 shows that superannuation is the second largest asset held by most Australians.
However, for three-quarters of these people, their employer decides where to invest their money.
A Roy Morgan poll conducted on behalf of the FPA late last year showed clearly that Australians want to make their own decisions about where and how their superannuation is invested.
It just makes sense that our legislatures give Australians this basic right.
Many opponents argue that a choice regime will lead to a situation similar to that in the UK and Chile where individuals were churned into high commission products.
However, their experience has allowed Australia to build a very strong consumer protection regime.
Financial planners cannot change a client’s investment strategy without making appropriate disclosure and obtaining the client’s consent.
The FSRA has introduced a significant hurdle for financial planners who wish to change investment strategies for their clients.
In particular, it requires financial planners to clearly disclose in writing to the client the benefit and costs of remaining with a particular superannuation product or switching.
The client then has the opportunity to evaluate what strategy they would prefer and sign-off. The decision-making power is put in the hands of the consumer.
But we can’t have that sort of thing going on, can we?
Allan Crompton is thenational public affairsmanager with the Financial Planning Association.
