Sue Chetwin, Consumer NZ CEO

Sue Chetwin's response to criticism of our Financial Advisers report, as published in the Dominion Post newspaper.

Consumer NZ’s role is to inform and assist consumers in their search for good value in the market place. When we give advice in our magazine and on our website, it is designed to help consumers make clear, effective choices.

Dominion Post columnist Bruce McKay, a director of Viaduct Capital (concerns about that company led the NZ Treasury to withdraw its Crown guarantee), accused Consumer NZ of being unfair and unconstructive in its major report of the financial advice industry released this month. He also accused the organisation of doing the survey to sell more magazines and complained that we did not compare our results with other studies or suggest what should “be done”.

Mr McKay should more carefully read the material we have published, including the report to the agencies which supported our research – the Ministry of Economic Development, the Retirement Commission and the Securities Commission. The article and the report are available free online.

Qualitative not quantitative

Mr McKay was also concerned at the sample size in our research of financial advisers. But Consumer made it clear that the work should be interpreted as qualitative, not quantitative, the intention being to document the consumer experience and identify key issues which may require a policy response.

We agree comprehensive studies such as those completed overseas by well-funded regulators would be desirable, but in their absence, our research stands as an excellent consumer-focused investigation of the financial adviser industry as it exists here.

Lifting standards

Within our report to government agencies Mr McKay will find ample suggestions as to what may lift standards in the industry. A commitment to applying existing laws seems a simple place to start. Both the Consumer Guarantees Act and the Fair Trading Act apply to financial products and services, including advice. Failure to actively apply these laws to the industry in the past has led, we believe, to the poor standards we see today.

We have also made clear our preference for standardised, clearly worded disclosure documents and removal of commissions. Our policy suggestions have been discussed with officials including the Securities Commission Code Standards Committee and tabled formally in submissions. As far back as 1988 we publicly called for the licensing of advisers.

ASIC study comparison

Among the material we recently presented to officials was a comparison of our results with those from an important Australian Securities and Investment Commission (ASIC) study.  We are surprised Mr McKay is not aware of the findings of this study, which mirror our own work.

In 2003 ASIC tabled a report outlining the results of a study completed in conjunction with our sister consumer organisation, Choice. In the Australian study consumer volunteers approached three financial planners. Each volunteer genuinely wanted financial advice. An expert panel, made up of advisers and others including those nominated by the Financial Planning Association of Australia, assessed the plans. The approach was similar to our own. The ASIC report named each firm (well known institutions were included) and published the panel rating for each.

A key result of the Australian study was that only 21 percent of the plans assessed were either “good or very good”. Reporting our results in the same way, would give 18 percent as good or very good. A further 29 percent of plans assessed by ASIC were “OK” and the remainder were “borderline, poor or very poor”.

Several important issues identified by ASIC emerged in our results. “A common observation by several judges was that clients’ interests did not appear to be the sole factor in the plan strategy or product selection. They characterised this practice as “commission-driven product selling, not impartial advice.”

ASIC said: “Many plans did not include sufficient information about the basis on which the advice was given, sufficient to allow the consumer to decide whether to take advice or not... Some plans had inadequate explanation of the rationale for the recommendations.”

Those like Mr McKay, who seems genuinely interested in finding solutions for the problems in our financial adviser industry, would do well to read the August 2009 submission from ASIC to the Parliamentary Joint Committee on Corporations and Financial Services.

It calls for reforms which: “Clarify the duty owed by financial advisers to clients (i.e. a fiduciary-style duty to act in the best interests of clients and, where there is a conflict between the adviser’s interests and the client’s interests, prefer the interests of the client)…

“Prevent remuneration structures that may create conflicts of interest that adversely affect the quality of advice, particularly personal advice.”

We will continue

We will continue on behalf of consumers to obtain, assess and report factual information about this industry. We will continue to work with officials and others to develop consumer-friendly policies.

As to undertaking this major survey only to “sell magazine subscriptions”, I can only say that we investigate issues that we think will interest consumers. The November magazine which contains the financial advisers’ survey has as its main cover feature a review of digital cameras.

More information

• Financial advisers - our article and background report
• Editorial: time for reform - Consumer magazine editorial (November issue) discussing the financial advice industry

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