Today I read the following article which had some responses to the mystery shopper article about Financial Planners.
Personally the responses from the advisers shows why exactly we need to have better regulation in NZ.
In Australia you would be able to present the kinds of documents that the advisers had which means it would not have been an issue.
If a document is being prepared for someone who can not provide sufficient information to prepare an appropriate plan then this should be noted in the document being presented and the shortfalls outlined regarding the preparation of a strategy without all the appropriate information.
Here is the article…
Consumer report questions answered
by David Maida | Tuesday, 17 November 2009
Consumer’s mystery shopper exposé of financial advisers raised more questions than it answered. financialalert spoke with two of the advisers whose plans were rated poorly, including Liz Koh, director of Moneymax and ex-Code Committee member, as well two members of the expert panel which rated the plans – and Consumer itself.What the advisers had to say
Koh strongly defends her Moneymax plan which was rated “rejected” in the Consumer exercise.
“I’m not going to take this lying down,” Koh told financialalert. “I have a reputation to defend. I believe I have an excellent reputation and this is obviously extremely damaging to that reputation. I want to see things put right, not only for myself but for other financial advisers.
Koh’s mystery shopper was seeking pre-retirement advice rather than investment advice. He was changing his job, selling his house and moving to another town. “I couldn’t do a detailed plan for him because I didn’t know what his new income was going to be,” she argued. “I didn’t know what he was going to sell his house for. I didn’t know how much he would have to outlay for a new house in the other town.”
Based on his circumstances, Koh gave him a basic plan, a copy of her free e-book, and the offer of a more detailed plan once he knew more about his new situation.
“People reading [Consumer's report] make a natural assumption that I’ve been rated on an investment plan, which is not true,” Koh said.
Koh thinks she knows why the panel rejected her plan. “They judged advisers based on what was in writing. Obviously, that excludes a major part of the advice process which is all the stuff which is talked about. “Most of those pre-retirement plans were rejected not because of poor advice but just lack of detail,” Koh believes.
Koh believes she provided the shopper value for money given his circumstances. “Rather than turn this guy down, I helped him. I gave him a basic plan for $600 because that’s what I thought was affordable. In exchange for that I get my reputation completely trashed by Consumer. Where is the justice in that?”
Koh also objects to the rating system used. “The labels they’ve used for those three categories in my view are extremely emotive. We had ‘good’, ‘disappointing’ and ‘rejected’ and nothing in-between. In my view, those labels are designed to sensationalise the whole issue,” she said.
As a direct result of the survey, Koh said she really had “no choice” but to resign her position on the 10-member financial advisers’ Code Committee, of which she was the practicing financial planner.
“The Code Committee’s work is extremely important,” she said. “We can’t afford for their to be any loss of public confidence in that whole process. That was the right thing to do. There was really no choice but to resign from that role.”
Fellow Code Committee member Patrick Middleton also resigned following the report. He is on gardening leave from his position as head of advice for Westpac, pending starting a new role with Perpetual Trust, and could not be reached for comment.
Koh believes the two resignations and Consumer’s report have interfered with the regulatory process.
“Here they are claiming we need better standards for financial advisers and a whole new regulatory framework and what their actions have resulted in is a huge disruption to that process.”
Koh has written a protest letter to Consumer’s chief executive, Sue Chetwin. She has asked Consumer to write a follow up article saying how advice was rated the way it was, and allow advisers a right of reply.
“I just think the whole thing is a scandal quite honestly. Who says that Consumer is the watchdog on financial advisers? This is why the regulatory framework is in the process of being set up. They’ve tarnished the reputations of every adviser in the country,” Koh said.
Koh asked how Consumer could provide detailed analysis of an entire financial services industry. “It’s up to the Commissioner for Financial Advisers and the Securities Commission to develop the framework for monitoring the standards. It’s not up to organisations like Consumer who don’t have the expertise to do it.”
Sam Cranfield of Cranfield Insurance and Investment, earned a “disappointing” rating for his plan. As a member of Consumer, he asked Guthrie why the report was so negative.
He says Consumer would not reveal the criteria on which plans were judged. “They couldn’t tell me any particular aspect about our plan,” he said. “We don’t know on what basis it’s been really been judged.”
He also noted his understanding that people with plans rated as “good” received advance notice before publication but those who were judged as “disappointing” woke on the day to see their names published.
Cranfield says a key part of his advice is discussing the document piece by piece because many investors actually fail to read it themselves. He questions how much documentation an investor expects as opposed to what the review panel expected. “It is a little subjective. What is required? Do we want a 300 kilogram document or do we want 15 pages of practicality and maybe an hour and a half or two hours discussion over the document to allay your fears and talk it through?”
“We’re quite comfortable with our plan and with what we charge,” Cranfield told financialalert. “We worked damn hard at it quite frankly, and we’re pretty disappointed with the end result.”
What the Securities Commission had to say
Contrary to some reports, the Securities Commission did not fund Consumer’s study, a spokesman confirmed to financialalert, dismissing the idea that the Commission helped Consumer in an effort to justify new regulations the industry. However, the Ministry of Economic Development (MED), which monitors the Securities Commission, did give Consumer funding for the research. “We simply participated as part of the inter-agency group that assisted at scoping the research,” the Securities Commission spokesman said in its defence. That inter-agency group consisted of the Securities Commission, the MED, and the Retirement Commission.
What Consumer had to say
Some have accused Consumer of using the financial advisers survey to sell subscriptions nothing that many reports published on the Consumer website are password protected for paying members of the organisation, whereas the financial adviser report is open for all to see. And in addition, Consumer CEO Sue Chetwin used her public blog to continue to attack financial advisers.
Consumer’s finance writer and economist, Susan Guthrie, defended the timing of the report on financial advice.
“It’s an area that we’ve always been interested in and done work on in the past. And with the timing of reforms we felt we needed a benchmark judging by what the experience of consumers is now,” she told financialalert.
She admitted that Consumer has never before targeted a profession with so many resources. “We’ve reported on various services before, but not on this scale. The scale of this project is larger that what we’ve done before.”
Guthrie defended Consumer’s decision not consider discussions between the adviser and client, and instead rely solely on the written financial plans to determine the ratings. “The process of written advice and giving documents that people can consider is quite different than making a sales pitch. I don’t think anyone would dispute that there is a difference. It’s pretty hard to distinguish between advice they’re actually selling and advice that’s genuine advice.”
Another criticism of the Consumer study was the inclusion of Andrew Coleman, a senior fellow at non-profit research institute Motu Economic and Public Policy Research, and economics lecturer at Victoria University, rather than someone from within the Waikato or Massey financial planning faculties.
Guthrie confirmed Consumer’s decided not to ask Waikato or Massey to engage in the exercise. “Those two universities have a financial planning department. That is one academic qualification. Motu is highly regarded as a research institute,” she said.
What the expert panel had to say
Craig Wylie, adviser and principal of Financial Fitness and Institute of Financial Adviser member, was on the expert panel which judged the financial plans. He agrees Consumer’s article was a bit sensationalised. “I guess the article made it sound a lot more dramatic than it was,” Wylie said.
In fact, Consumer’s 18-page background paper (Click HERE >) does include some positives which were not mentioned in the feature story. One whole chapter is dedicated to “What was done well”. It includes points such as appropriate processes were followed, asset mixes were roughly right, and advisers contributed to the shoppers’ knowledge.
Wylie confirmed that the panel used a checklist and then discussed aspects of each plan amongst themselves to agree on the ratings. The plans were blind with no identifying details of where the plans came from.
Wylie says the main negatives were around disclosure of fees and tied arrangements with product providers. “The issue that came out from my perspective is that there were a number of those plans deemed ‘disappointing’ which were actually probably OK. It was more around trying to get a clear understanding of costs and in some cases rationale. The disclosure issues were an issue.”
Motu fellow, Andrew Coleman, told financialalert that he believes he was selected for the panel because of his contacts in the banking industry. He admits he is not a financial planner but says “it’s not that complicated”.
“I don’t really think financial planning is rocket science,” he said. “In my personal view, I think that a lot of the basics have been understood quite well for quite some time.”
He charged Consumer for his services at his charity rate. He said it was not that the plans were “terrible” but the phrase “could have done better” sprang to mind.
“The plans often times didn’t give a good range of options. They didn’t show the simplest way that people could do things and didn’t really alert people to a wide range of sensible planning options.”
Coleman said he considered some plans to be “dangerous” in that they exposed people to an unnecessary level of risk.
Another issue was clarity. He said many plans didn’t answer the issue around “this is what you need and why” in very simple words. Nor did some “give some options on the ways to achieve that. And then maybe give a recommendation – this is the plan that we recommend, if you don’t like this, here is a different type of option.”
Coleman says he also took issue with advisers who advertised themselves as non-aligned or independent. “Really they were selling particular products which they had an interest in. And we didn’t find that the level of disclosure was particularly helpful.”
The plans which Coleman rated as “good”, he says, set out advice clearly. “They came out and they gave a diagnosis essentially of what you need, what it’s going to cost and what we’re doing to address that need. That was very well done.”
© 2009 financialalert, Brillient Investment Publishing Pty Ltd ABN 19 122 531 337.
