Mon, 23 Apr 2012
Most of us know that getting advice from a financial adviser can help us achieve our financial goals, whatever they may be. However, many of us can only determine the quality of that advice after many years, following the success or failure of the recommended strategies. This is because we generally only see one financial adviser, so we don’t have the opportunity to compare services.
To address this, the financial services regulator, the Australian Securities and Investments Commission (ASIC), conducted a "shadow shopping" study. They sent their representatives to 279 financial advisers and then rated the advice they received.
ASIC found that only two examples of advice, or 3%, were considered good quality. The majority of the advice examples, or 58%, were adequate and the rest were considered poor quality. So how do we determine if the advice we’ve received is good quality?
This is how ASIC has characterised good-quality advice:
- It demonstrates that the adviser has improved the client’s financial situation.
- The adviser has clearly defined the scope of the advice and obtained detailed information about the client’s relevant objectives, financial situation or needs.
- The adviser assists the client to set and prioritise specific and measurable goals and objectives.
- The strategy meets the client’s relevant personal circumstances well, is specific, measurable and achievable, does not expose the client to more risk than necessary, and presents options (where relevant).
- The adviser considers the wider impact of the advice (where relevant) – for example, the tax or social security consequences.
- There is evidence of good communication with the client. This includes Statements of Advice that are logically structured and easy to understand, and verbal interactions that aim to ensure that the advice and recommendations are understood.
- The products meet the strategy.
While some of these are still hard for us to evaluate without comparison, or significant financial knowledge, it does highlight the importance of communication. Your financial adviser should find out a lot about your personal objectives, financial situation, needs and attitudes to risk. They should also be presenting you with different options to choose from.
This information has been prepared by Perpetual Investment Management Limited (PIML) ABN 18 000 866 535, AFSL 234426. It is general information only and is not intended to provide you with financial advice or take into account your objectives, financial situation or needs. You should consider, with a financial adviser, whether the information is suitable for your circumstances. The views expressed in this article are the opinions of the author at the time of writing and do not constitute a recommendation to act. Any information referenced in the article is believed to be accurate at the time of compilation and is provided by Perpetual in good faith. To the extent permitted by law, no liability is accepted for any loss or damage as a result of any reliance on this information.
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Most of us know that getting advice from a financial adviser can help us achieve our financial goals, whatever they may be. However, many of us can only determine the quality of that advice after many years, following the success or failure of the recommended strategies. This is because we generally only see one financial adviser, so we don’t have the opportunity to compare services. Find out more
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