Last week’s official announcement of the joint Australian Securities and Investments Commission (ASIC)/Australian Consumers Association (ACA) financial planners survey (Sunrise Exchange News reported the ACA version two weeks ago) tested the quality of advice provided by financial planners.

In the third survey of its kind in the past eight years, 124 genuine customers were recruited and obtained financial plans from advisers around the country. Panels of industry experts then assessed whether the plans met legal requirements and “good practice” standards for a comprehensive financial report.

ASIC’s Peter Kell said the overall results of the survey show that many people aren’t getting the quality of advice they deserve. “This is a wake-up call to the financial advisory industry that significant improvements are needed,” he said.

“The ‘good practice’ standards which were part of the assessment of the plans are in fact standards that have been developed by the industry itself. They should be in everyday use, given that the industry handles many millions of dollars of people’s savings. It’s disappointing to see that these standards are not being achieved consistently.”

Mr Kell said ASIC is also meeting all the firms who recorded a “very poor” plan to ensure that weaknesses are promptly rectified. It will also require some licensees to certify their compliance with relevant legal obligations including the “know your client” rule and commission disclosure. And it will work with the Financial Planning Association to address some of the poor communication standards that the survey has revealed.

“This is a hugely important industry for Australians, especially retirees, and they deserve comprehensive, unbiased advice from efficient and effective advisers,” Mr Kell said.

Only 2% of the planners surveyed managed to record a “very good” score; a further 19% were “good”, and 29% were “okay”. But 24% were found to be “borderline” , 17% were “poor” and 10% were “very poor”.

Common deficiencies in plans included 15% of planners failing to provide an advisory services guide. Many failed to show how the recommended strategy and action was appropriate for the client.

Other deficiencies: supplying hard to read material that was “padded” with reams of generic information; some planners ignoring key client requirements without explaining why; higher-fee investments (such as some wrap accounts and master trusts) being recommended without showing why these were better than cheaper alternatives; and recommending a switch without showing how new investments would be better than existing ones.

Some firms produced both good and poor plans. Mr Kell said this inconsistency “clearly indicates that firms need to pay more attention to training, compliance procedures and quality control”.

Looking on the positive side, he said some improvements have been made since the last survey in 1998, including small improvements in the areas of disclosing commission and assessing client risks.

While plans were assessed against existing legal requirements and not the Financial Services Reform Act (FSRA) legislation, he said many planning firms will need to improve their written advice to meet upcoming requirements under the FSRA, as some “good practice” standards will become legal requirements by March next year.