Consumer survey another knock to confidence in advisers: IFA says

A Consumer investigation that found the level of advice from financial advisers to be "scandalously poor" is another blow to the public's confidence in the industry and will eventually "weed out" those practitioners who are bringing the sector down.

Friday, November 6th 2009, 7:45AM 2 Comments

Institute of Financial Advisers Chairman Phillip Meyer said the research further undermined the public's perception of financial advisers and was another blow the industry.

"The report is extremely disappointing and doesn't reflect well on the industry," Meyer told Good Returns. "From the point-of-view of the public, it doesn't inspire confidence and is a concern for the adviser community."

Consumer NZ mystery-shopped 33 financial advisers and had an expert panel assess the quality of 17 investment plans, seven of which were pre-retirement plans. Only three were rated good by the panel, with the rest either disappointing or rejected.

Meyer said the research reiterated the need for advisers to get on the pathway to proving their competency and urged those who are not yet affiliated with an association to do so.

The government has been working to overhaul the industry since it introduced legislation in 2008 to bring in new regulations and competency requirements for advisers late next year. The regulations include a new code of conduct for advisers, introduce a new disputes resolution service and will see the Securities Commission take on a regulatory role for the sector.

Commerce Minister Simon Power said Consumer's findings "are very much aligned to anecdotal issues that continue to be raised" with him, though he is confident the new regime will be embraced by advisers.

"I have every confidence that the industry will play its part in supporting this reform," he said.

AXA chief executive Ralph Stewart said the Consumer investigation showed "a couple of clear weaknesses," though it was unfortunate that the research was done during the early stages of adviser training.

"Industry knows that something has to be done, and this reinforces the view that we have to invest time and effort in training," he said. "We're all aware of the need to improve the quality of advice and regulation is helping do that."

The IFA's Meyer said the research highlighted the two positions for advisers between those whose pay is tied to the sale of a particular product and those whose pay is determined by the client, and that customers should expect to receive relevant disclosure.

Still, Meyer said it is up to the client to ensure they understand what they are taking on and if there is any hint that they are not aware of the risks, they should not proceed.

"If a client gets advice and isn't comfortable to take the risk, they should not go any further," he said. "They need to understand the risk involved, even if they are given the best advice."

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Comments from our readers

On 6 November 2009 at 9:17 am Richard Renfrew said:

Again what absolute twaddle from the IFA. Did they observe the number of advisers with CFP's who supposedly had plans not of a "good" standard.

Perhaps it was more related to the selection of the expert panel and a little Consumer bias for sensationalism. After all its been a fantastic PR exercise for Consumer.

On 6 November 2009 at 11:34 pm Michael Donovan said:

I again emphasise that the comments we have read on various sites since the release of the Consumer Report have been opinions from those of us who have not yet even seen the so-called plans, nor heard any of the verbal points offered by the relative financial planners.
The financial planning profession has really copped it, obviously mainly as a result of the huge and protracted worldwide recession, and "it aint over yet."
There are two culprits in all this,firstly the advisers for not being as vigilant as they thought they were, having been fooled by the elongated 'good-times', and secondly by the investors who succumbed to greed.
What it appears the Consumer report has revealed is that the advisers seem to have generally just remained offering the same old plans and methods, instead of awakening to the fact that many of them have been doing it wrong for quite some time.
I still maintain that it would be very helpfull to see the range of plans and verbal advice before any conclusive opinions can be accepted, from both consumer, and those of us who bother to write our opinions, otherwise it may just be that the investing public is further confused, and end up making their own poor investment decisions, all based on a one-sided set of opinions in the Consumer report!?
There is much more in this debarcle than just a debate over the merits of the Consumer views, and the media has been very active in at least exposing what appears to be huge "hidden-fees" ripoffs within some of the larger financial planning companies---all at a huge 'loss-cost' to the investors, and this continuing professional shakedown is really (& I for one hope)only just a beginning of something long overdue.
Those who have been doing it right, or at least have adapted to do so, have nothing to worry about---the others---had better tidy up their act, because higher regulations have proven to not work, wait and see.