97% of financial plans fail test: ASIC

The Australian Securities & Investments Commission (ASIC), the regulator of the financial planning industry, recently released the results of its Shadow Shop Survey.

The regulator claims that of the 64 financial plans obtained from planners around the country, 36 per cent were poor and 61 per cent were adequate. Only 3 per cent (or 2 plans) were considered good.

ASIC are still working through the findings of the survey but despite this, they have stated there were some broad themes in the results. One major theme related to conflicts of interest. ASIC claim that a significant number of the plans they reviewed were graded as poor or inadequate because the advice was hampered by conflicts of interest.

A conflict of interest arises where a financial planner has an incentive to recommend one thing over another and as such, the advice provided may not be in the best interests of the client. A classic example is a planner employed by a large institution. Large institutions often incentivise their planners if they recommend their own products to clients.

This has been the case since the financial planning industry started out and change does not look likely. The simple reality is, for as long as institutions are allowed to manufacture products and provide advice to clients, a conflict of interest will always exist.

The enormity of this issue should not be underestimated as 85% of planners are employed by, or affiliated with, large institutions.

So does this mean all financial planners who are not affiliated with a large institution will not have conflicts of interest? No, it doesn’t.

For a planner to have no conflicts of interest, they must be independent. Not independently-owned (conflicts still exist in this case), but independent.

Therefore, by obtaining advice from an independent planner, you have the greatest chance of getting advice that is in your best interests. Advice that is in your best interests is advice you can trust.

However, there is one problem with independent financial planners. Finding them. It is estimated less than 1% of all planners in Australia are independent.

 

 


This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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Phone: (03) 9708 8126

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