The Australian Securities & Investment Commission has conducted a trial of finacial advice which has found that only 3% of financial plans offered to clients were valuable.

 

Of 64 plans tested, AISC rated only two as 'good', while 23 of the plans were assessed by an expert panel as 'poor'.

 

ASIC's 'Shadow Shopping' trial, conducted in 2006, revealed "a high number of instances where there was not a reasonable basis for personal advice provided to a retail client: 16% of the advice clearly did not have a reasonable basis in some respect and a further 3% probably did not have a reasonable basis based on the information ASIC received".

 

The results of the trial were outlined in ASIC's supplementary submission to the Senate inquiry into the Future of Financial Advice law reforms.

 

The submission noted that of the advice by AFS licence representatives where ASIC judged the advice to clearly lack a reasonable basis, 85% of retail clients were satisfied with the advice they received.

 

"This suggests that most clients do not have the ability to assess the merits of the advice they receive, and take the advice on trust. For example, we are aware of a case, where a retail client accepted the advice they received in circumstances where it was disclosed in the Statement of Advice that they would be significantly worse off financially as a result. These matters demonstrate why disclosure alone is unlikely to resolve these issues and supports the case for enacting measures which more closely align the interests of the adviser and the client and improve the quality of advice clients receive."

 

ASIC is currently conducting a shadow shop of financial advice provided to retirees, and reports that "current indications are that we will be reporting a significant level of poor advice".  The results will be publicly available in March.

 

In the submission, ASIC also provided comment on its Report 224: Access to financial advice in Australia (REP 224), which identified consumer mistrust of financial planners as a barrier to consumers seeking financial advice.

 

"The report noted that among some consumers, notably those who have never used a financial planner or those who have had a negative experience with a financial planner, one of the main reasons for not seeking advice is the lack of trust they have in financial planners. "

 

The ASIC submission is available here.