Consumer mystery shops advisers again
Consumer has mystery-shopped financial advisers again and says the results show that the level of financial advice being provided is "scandalously poor".
Thursday, November 5th 2009, 7:33AM 30 Comments
Consumer chief executive Sue Chetwin says the purpose of the exercise was to see if the standard of financial advice had improved.
She says the answer was no and the results shocked the institute.
"This is an industry in serious need of reform," she says. Her view is the proposed regulation regime is too little too late.
Overall Consumer mystery shopped 33 financial advisers from large institutions with in-house advisers and agents, sharebrokers and nationwide adviser chains, to small standalone firms. An expert panel assessed the quality of advice and information in the 17 plans it received.
Only three out of 17 advisers produced plans that were rated "good" by the expert panel, she says. The remaining 14 were rated as "disappointing" or were "rejected".
"So many issues were found it was hard to know where to start. There was poor analysis, unclear costs, advisers portraying themselves as independent when they were not, high costs and bad products."
Evidence that the analysis and advice was done poorly reflected badly on the competence level of many practising advisers.
"We're concerned that skill levels are low and will remain low, unless competency standards are included as part of the adviser authorisation process due to come into force next year."
Of the 17 plans received, 10 were investment plans and seven were comprehensive pre-retirement plans. The shoppers looking for pre-retirement plans had, or were likely to soon have, significant mortgages, other debts, bank deposits and other investments. Most were in KiwiSaver schemes.
They were looking for savings and expenditure budgets that would help them meet their short-term goals and eventually provide a nest-egg. Some also needed advice about insurance, wills and enduring powers of attorney.
Chetwin said often they were told to invest too much in managed funds at a time when it was likely they would also have a large mortgage. Advisers don't receive commissions from providers for recommending debt-reduction strategies.
Chetwin said most of these pre-retirement plans were of little practical help. Costs ranged from nothing to $1,200.
In eight out of the 10 investment plans shoppers were given no meaningful explanation as to why they should take up the recommended investment strategy. And in seven out of the 10 plans the panel could not definitively work out the initial and ongoing costs of the advice.
"Shoppers were given conflicting information about service fees - and sometimes there was no information on costs. In half the investment plans, fund-management fees weren't adequately disclosed."
Too often advisers gave the impression they were knowledgeable about a range of investment products and might recommend any but in the end shoppers were told to put most of their savings with one provider, and were given no explanation of why this provider was preferred.
Some of this "independent" investment plan advice cost more than $1,200.
"Consumers need access to unbiased advice but this won't become an industry norm until commissions are banned," Chetwin said.
The expert panel who reviewed the plans comprised: Gareth Morgan client adviser Jonathan Glass, Financial Fitness principal Craig Wylie and BNZ investment manager Tony Cross. Both Wylie and Cross were nominated by the Institute of Financial Advisers and attended the panel on alternate days.
Other panelists included Motu Economic and Public Policy Research fellow Andrew Coleman who is also a lecturer in economics at Victoria University.
The Retirement Commission, the Securities Commission and the Ministry of Economic Development help fund this project.
Read what others have to say about the report in the FEATURES Section
Read report here
Readers comments are below
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Comments from our readers
The industry gets what it deserves.
It needs to upskilled dramatically and get rid of the cowboys....FAST.
You are all your own worst enemies.
I do agree though that there is a large disparity of opinions on investment and risk advice, even between experienced advisers. How can you prescribe opinions and experience? On the flip side, experience can tell us (in some instances) that it may be better to use one provider. This can reduce fees, or give a better overall picture and result.
On the subject of commissions - 80% of New Zealanders will not pay for financial advice up front - adding the cost to the product and paying commission is the only way to educate that 80%. However, I totally disagree with large up-front commissions - they do not encourage long term relationships or regular client servicing. Commission should be on a regular spread basis, with no up-front. Better for the client, better for the intelligent broker/adviser.
Gareth Morgan could hardly be called an independent assessor for God's sake!! And without more information, Sue Chetwin seems to be as blinkered as her predecessor when it comes to debt reduction!!
For instance, did the 'mystery shoppers' actually present to an office for a plan or was all the advice sought only over the phone?
What about the other 16 advisors serveyed? Did they supply plans? If not why not - did they recognise the shonky CI survey?
By way of example, some while ago, we received a call from someone interested in getting advice. We went through our normal procedure and would not have given advice over the phone. We never heard from the person again. Not long after this the CI released a bad report on advisers!!
The CI caters to the lower end of the market, people who are generally not going to have significant wealth nor be prepared to pay for advice. Contrary to what politicians and forlock-tugging public servants may claim, the new rule proposals are not going to help these people - they're just going to put good advice even further out of reach.
I think it's time the CI lifted it's game if it wants to gain and keep any credibility in this field.
Barry Brown CA, CFP, AIF
I do not dispute the surveys finding and who could there are some shoddy advisers out there but we are not all uneducated crocks as suggested. Having spent 5years at university, 3 years studying to become an Adviser plus years of ongoing training not to mention other industry related experience gained through previous employment I do not consider myself uneducated. I became an Adviser not for my own financial gain and definitely not for the public respect but out of a genuine belief that I can help people achieve their financial and personal goals.
Ask questions of your Adviser, seek referral from friends and colleagues and you should find an Adviser that gives good, sound advice.
Bring on the regulations!
Grant Helm
Director/Senior Financial Adviser
Saero Financial Services
I do agree though that there is a large disparity of opinions on investment and risk advice, even between experienced advisers. How can you prescribe opinions and experience? On the flip side, experience can tell us (in some instances) that it may be better to use one provider. This can reduce fees, or give a better overall picture and result.
On the subject of commissions - 80% of New Zealanders will not pay for financial advice up front - adding the cost to the product and paying commission is the only way to educate that 80%. However, I totally disagree with large up-front commissions - they do not encourage long term relationships or regular client servicing. Commission should be on a regular spread basis, with no up-front. Better for the client, better for the intelligent broker/adviser.
I also receive nothing like a "shock' at the apparent findings of their mystery-shopper campaign.
As i have wriiten previously, I have determined that the standards of investment advice has been sub-standard for a long time now, and advisers have often scapegoated the real reasons behind their failures, and blamed the institutions eg ING and forgotten to look in their files (mirrors) and seen the real culprit.!
Advisers have lived in a "lulled" sense of life, from the 1990's where it was so much easier to get investors money, and then be treated to markets which, while they suffered small setbacks (corrections) just seemed to defy gravity, and keep on rising..!
Now we are thankfully noting the emphasis on the heirarchy of the larger groups such as Money Managers ,now renamed MMG in an apparent endeavour to use the "ostrich" theory of not being noticed. It is not just the advisers at the coalface, but possibly more so the rules set in place by such 'leaders.'
I have noticed a new trend, where these leaders appear to be exiting their businesses literally in droves, so it is obviously going to leave the left-over advisers to re-structure sufficiently to regain the respect they wish to have from the investing public.
Regarding regulation......this has only proven to add further risk to investors, as the perceived "protection" has resulted in riskier investment portfolios....contrary to what one would tend to expect..!
Competency and experience is going to be the theme to be guided by as we move forward into these extra volatile times, and I for one am going to watch for the necessary signs.
The advisers who have been left with none of the original negative and old-fashioned head-office guidance may very well be able to reflect a more positive face, so let's see.
Getting rid of up front commission will make a difference to the over all cost of a plan to the consumer, but it is taking fees off one part and adding them to another.
In the "80%" bracket mentioned in posts above, taking away trail commission will only serve to leave clients with no advice, as they will not seek advice and their situation will deteriorate.
Any adviser worth his title can tell you it takes hours to prepare a personalised risk plan for insurance, taking into account a range of things. It also takes time to produce a financial plan that takes more than just the investment of the money into account. This was one of the complaints the institute put forward.
How is Joe Average going to pay $1200 every one to two years to have a comprehensive review of their insurance in relation to their situation. Or their KiwiSaver contributions, or their retirement plan?
Its not going to happen - not for 80% of the market, or more.
So the consumer misses out, in the name of an idea that suits the 1%- 2% of the population who can afford such advice.
KiwiSaver needs trail commission and Risk advice needs commission to keep advisers advising. It is simply a fallacy to think that providing a needs analysis is something an adviser can do for a fee - to 80% or more of the market.
In fact its a joke.
Lets look at wills as an example of what might happen.
Feel free to force fees on people seeking advice for investment for large lump sums.
Have you ever asked a Lawyer how many of his clients have wills? I have.
80% or more of one lawyer's clients had no will, or he had not talked his clients into doing wills with him.
Why? Because he didn't want to do all the work involved for free.
Ask a lawyer you know how many clients of his actually have wills?
I know how many of my clients have wills too.
If we force clients seeking simple solutions to pay large up front costs we will end up in a similar position. They won't want to pay the costs. Advisers won't want to ask the questions, and they will simply find legal ways to avoid asking.
The client will lose.
Neil Smith
Life Risk Limited.
However, what is far more concerning is that Sue Chetwin - leader of a consumer organisation - does not know how the new financial services legislation will work. Her comment "We're concerned that skill levels are low and will remain low, unless competency standards are included as part of the adviser authorisation process due to come into force next year." shows that she is unaware of how such an important piece of consumer protection legislation will work. One of the major parts of this legislation (along with membership of a dispute resolution scheme) is the requirement that advisers much reach a certain level of competency before being able to be registered. I would have thought this is pretty common knowledge. What's that about throwing stones in glass houses!
This consumer report is very disconcerting. Congratulations to the 3 firms rated as giving good advice. The picture this paints however is that most of us don't give good advice. For there to be any value out of this exercise I would like to see consumer "white label" and circulate the good plans through the auspices of the IFA so they can be used as benchmarks. The trouble with such a small sample is that it may be skewed and not representative of advisers as a whole. The result is that all other advisers, apart from the three named and those on the panel, have negative aspersions cast on them.
Product providers make products to sell. Advisers decide whether client funds should go in them. So who is at fault for clients ending up in bad products???
If you can't get to grips with self-responsibility, then I suggest its time you get out before regulation pushes you out anyway.
Richard Holden is right - this isn't about Gareth Morgan. There are too many advisers in this industry who give Gareth Morgan all the fodder he needs to achieve what he wants - it's not like he needs to look hard to find ways to criticise the industry...
Time to look in the mirror everyone. This survey was wide-ranging, so it's pretty hard to deny the industry needs a lot of cleaning up.
"They rarely do better than six-month term deposits – and that’s without the extra costs of holding these funds inside a “wrap platform”."
Is CI failing these plans because they recommend investing in growth assets rather than dumping a client's entire portfolio in a term-deposit?
I have read it and I must admit it does raise some questions. For one, how can you approach 33 advisers and only end up with 17 plans when you give all advisers the same brief?
I also think this survey is extremely poorly timed given that regulation is way down the track and standards are now being worked on by the Code Committee. Consumer doesn't appear to be aware of any of this legislation/regulation which raises the question - why not? Perhaps a more constructive approach from them would have been to talk about regulation and how that combined with training should improve standards - which as demonstrated is required.
Just as an aside if you read Mary Holmes on the weekend she was having a dig at advisers as well (she is now a self proclaimed Author and Journislist; despite giving advise on a regular basis). It seems her skills are being put to the test as she claims "doctors presumably have our best interests at heart, that’s not always true of advisers." Unfortunately you don't have to read far on the internet to know that just isn't true. Google the name Harold Shipman. You will note a doctor positively ascribed of 218 murders.
So take heart, there is room for improvement everywhere.
the consumer report was flawed by any measure by having Gareth Morgan as part of the exercise. In my opinion the most overrated supposed expert in this field.
did sumerise that about right?
im practicly new to this area of expertise, so exuse me if i put anyone in their places
isnt it true you can only learn from your mistakes
the truth can be hard to handle, i like many others should know.
if this is an open table conversation, plse be conscientous enough to tell me, and any others
that need to know.
bear in mind, that im no regular, john or jane doe
freedom of information and its act is rather funny, u reckon?
that could be seen as hypocrytical, or even synicle, but personally id keep my business professional.
isnt that the norm?
business is business
and stigmatisations are just that, personal.
as far as im concerned, these fortunate financial experts, had the power to become their own god!
great job consumer cheif, sue chetwin
finally someone with a spine and not affraid to go against the tide.
Gareth Morgan was not one of the panel members, it was someone from his company. However, Gareth would take a lot of beating in the "financial success and worth" arena.
Sayings come from a long time back, and good ones stick forever, and maybe the one that suggests you should "rub shoulders with successfull people if you want to become successfull yourself" may apply well in regard to Gareth Morgan?
It remains that you should always look well into anything you are assessing the worth of, and it appears that most comments here have been made without a prior research into the Consumer Report?
This report is only part of what must hurt many failed or failing financial planners.
The financial adviser itself is the main culprit in any poor financial planning.
Move forward from this Consumer Report, and start to think more on the pending regulations expected to be applied to the financial planning profession.
If you think these 'regulations' are going to be the answer to the woes battering the profession, be well aware that 'regulations' have actually failed to achieve their purpose for investors...!
eg; It has already been proven overseas that heavier regulations have actually resulted in riskier investments being accepted by investors because they "perceive" that the 'increased regulations' have somehow magically provided safer investments for them.
The fact is, that ALL those investors were caught out in this BIG RECESSION just as much as those investors in an 'unregulated' place such as Kiwisaver-land...!
Newcomers are advised to listen to their elders, but only the ones who can show "competent experience,".....with or without lots of academic qualifications, because, while they may help sometimes, "academic qualifications and extra regulations" have already proven categorically to not be able to beat "competent experience..!"
Michael Donovan
x CEO Moneo Associates.
Tauranga
Let's call a spade a spade!!
These are discussions about INVESTEMENT ADVISERS!
It's well past time that we had three clearly distinct categories:
Investment Advisers,
Risk Advisers,
Financial Advisers
and not confuse the 3.
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My advice to financial services participants: Start listening to those who espouse uncomfortable truths, and recalibrate your businesses / proprietorships to provide a robust value proporsition. It's no longer appropriate to blame the findings of these types of reports on 'other planners' - it's you!
On a related note - I would seriously question the compilation of the Expert Panel and would encourage Consumer to also lift its game.