The Australian Securities and Investments Commission’s (ASIC) Shadow Shop report has found a direct link between the level of strategic advice given to a client and the overall quality of the advice provided.
Speaking at the Financial Planning Association’s (FPA) Shadow Shopper Workshop in Sydney this week, Nick Coates, ASIC Senior Manager – Retail Investors, told attendees that strategic advice was the most important determinant of the grade applied to advice examples in the Shadow Shop.
According to Mr Coates, each of the 25 cases of poor advice uncovered by the Shadow Shop involved poor strategic advice.
“When things went wrong, they went wrong at the ‘know your client’ point, or the ‘strategic advice’ point,” he said.
One example of poor strategic advice provided by Mr Coates to the workshop attendees was an adviser’s failure to consider a client’s debts when delivering retirement advice.
ASIC’s findings subsequently raise questions about the ability of advisers to issue limited-scope advice, given they will also be assessed on whether that advice takes into account a wider strategic position. This is despite the regulator previously indicating it believed scaled advice was possible under the Future of Financial Advice (FoFA) reforms, which include a Best Interest duty and enhancements of ASIC’s powers.
Commenting on the issue, the FPA’s Chief Professional Officer, Deen Sanders, said that strategic advice considerations are those which do not lead to a financial product recommendation.
It clearly is costly to understand a client’s needs
“It’s more about looking at the broader needs of the client,” Mr Sanders said. “If there is no strategy then you link to products straight away, and that’s the danger that emerges in many of the advice models in the industry.
“The scalability of advice is not so much about comprehensive financial planning it’s more about clearly identified client needs that you need to respond to. The challenge of working this through will be determining how scalable advice can be delivered in a way that protects the client but provides adequate coverage of strategy at a broader, professional level.”
Mr Sanders added that developing a good understanding of a client’s needs, goals and objectives was a more expensive exercise than simply providing one-off, single-issue, online advice.
“It clearly is costly to understand a client’s needs. That is something that I don’t think has been well understood. Scalability, and FoFA, and certainly the Government’s views of the delivery of advice on superannuation, are (focused on the fact) that all Australians should get it and they should get it cheaply. That’s not quite the same thing as engaging in a professional process with a professional financial planner.
“We need to find a way to cover that broad spectrum, to ensure that Australians get access to the best possible advice they can, at all levels of payment they’re prepared to make.”
