• Most of the plans were seriously lacking in analysis and advice – areas that demand good knowledge and technical skills. Advisers must be required to invest in a higher standard of financial education.
• Consumers need access to unbiased advice. But this won’t become an industry norm until commissions are banned. Doing away with commissions is an essential change.
• The quality of disclosure about costs and provider-adviser relationships was appallingly low among most advisers we went to. Consumers aren’t getting the information they need. The government must step in immediately, with compulsory requirements for clear and concise disclosure. This should be in a set format of no more than one to two pages and should include standardised reporting of initial and ongoing costs in dollar amounts rather than percentages.
• Without adequate information, consumers can’t tell good from bad. This means advisers can over-charge for their services because consumers don’t know when they’re paying good money for bad advice. It also means poor-value advisers and providers can survive because there’s no market (demand) pressure on them.
• Of the advisers we approached for pre-retirement plans, less than half provided one. Of those who did, only one out of seven produced a good plan. Access to good pre-retirement advice seems hard-to-get for ordinary Kiwis.

No surprise

Two members who won’t be surprised by our results are Steven and Anne Wilson (not their real names) who in 2008, after more than 10 years as clients of Money Managers, found themselves with half of their investment portfolio in income-producing investments that were frozen or not redeemable. In Anne’s view their adviser had “simply been a shop front for Money Managers’ products, generating millions for Money Managers’ owner and his associates”.

Steven and Anne are particularly annoyed that they paid thousands of dollars each year for modest returns, believing that their savings were in appropriate investments. Salt to the wound is that their ex-adviser appears to be continuing to receive commission from the frozen funds while they receive nothing.

Fortunately, they’ve now found an adviser who gives excellent service. The recommended investments are explained well and the adviser is upfront about what he’ll earn from the investments. Steven and Anne now hold a range of company bonds, term deposits and company shares.

Background report download

For more details about our mystery shop of financial advisers you can download a copy of the background report here.

Download now (Word document 116 KB).

Report by Susan Guthrie.