Industry failure

Our mystery shopping covered all the big names – institutions with in-house advisers or agents, sharebrokers, nationwide adviser chains, and small standalone adviser firms (see What we found). Nearly all were found wanting.

We found so many issues it’s hard to know where to start: poor analysis, unclear costs, advisers portraying themselves as independent when they weren’t, high costs, bad products ... it was all there. It appears nothing has been learnt from the bad press that the financial-advice industry has had over the last few years – it remains woefully wanting.

The industry will no doubt point to the small size of our sample: 17 advisers when the Institute of Financial Advisers alone has 1400 members. But by covering the big players and the national chains as well as the small firms we’ve opened a window into the entire industry: we don’t expect service quality and costs to vary significantly within an institution or a national adviser chain. So we think our results show an industry that’s failing to deliver.

Our shoppers and panel

Our 11 mystery shoppers ranged in age from mid-30s to just 80, and visited financial planners in Auckland, Wellington, Christchurch and Bay of Plenty. Each shopper sought advice from several advisers. These were real people with real financial questions.

Our expert panel

• Jonathan Glass is a client adviser with Gareth Morgan Investments. He has 10 years’ experience in the financial industry here and in the UK.
• Craig Wylie is an adviser and principal of Financial Fitness in Wellington and Tony Cross is an investment manager with BNZ. They were nominated by the Institute of Financial Advisers and attended the panel on alternate days.
• Andrew Coleman is a senior fellow at Motu Economic and Public Policy Research and a lecturer in economics at Victoria University of Wellington.

Our panel members were given copies of the 17 plans, and also the disclosure statements and other documents provided by the advisers. As well, the panel had summaries of both these documents and the questionnaires completed by the mystery shoppers. They assessed the quality of the advice and the information given by the advisers.

Jargon buster

We always try to avoid jargon … but some financial terms are inescapable:

• Directly held investments are issued by a company and individuals can buy them on their own account. This term is usually used in connection with shares and bonds.
• Balanced managed funds are pooled schemes that spread an investor’s money across different types of investments such as fixed interest and shares. Some 40 to 60 percent of the fund is likely to be in shares.
• "Wrap platform" (aka portfolio administrative service) is an administrative service for investors. It may provide “custodial” services (such as holding title to the investments), carry out the buying and selling of investments, and provide reports to the investor.