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The shadow shopping survey covered 259 individual advisors and was designed to assess whether the advice given to consumers after the introduction of Super Choice last year complied with the law.
It found that 16% of advice was not reasonable given the clientÆs needs, and a further 3% was probably not reasonable. Where consumers were advised to switch funds, a third of this advice lacked credible reasons and risked leaving the consumer worse off.
The survey found that unreasonable advice was three to six times more common if the advisor had a conflict of interest over the advice given to the client û conflicts such as the promise of higher remuneration if the recommendation was followed, or the recommended product being associated with the advisorÆs licensee.
ôThe most positive finding was that the æstrategicÆ advice provided was generally helpful to consumers,ö says ASIC chairman, Jeffrey Lucy. This advice covered issues such as asset allocation, how much to contribute to superannuation and tax advantages.
ôHowever, the survey found the financial advice industry still has significant work to do before the quality of advice will be consistently at a level that ASIC and consumers would regard as acceptable,ö he says.
ASIC will be sending the survey results to each licensee whose advisors participated in the survey and says it will be conducting specific follow up action with 14 licensees in response to issues raised by their clients.
The regulator says the industry could improve the quality of advice given to pension holders if it: investigated the clientÆs current super fund before recommending a new fund; paid more attention to a clientÆs insurance within an existing super fund; disclosed the reasons for recommended action; and disclosed the consequences of switching super funds.
A striking finding of the survey was that consumers were rarely able to detect bad advice. ôThis shows the importance of advisors ensuring their recommendations are properly researched and appropriate for the clientÆs needs,ö says Lucy.
The shadow shopping survey involved Roy Morgan Research recruiting a random sample of participants and gathering examples of their superannuation advice between June and December 2005.
It assessed 306 examples of advice given to real consumers by 259 individual advisors representing 102 Australian financial services licensees.
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