With news that AMP unilaterally opened new super accounts for clients they owed money to and a pending class action lawsuit against National Australia Bank making headlines – is it any wonder advice continues to have a trust issues in the wider community? Despite being highly trusted by their clients, one of the problems facing individual advisers is that they are often unfairly linked with the negative practices that have occurred at an institutional level or in the wider industry.
AMP Own Goal?
A recent media report said that that late last year, AMP started to contact former clients to alert them AMP owed them the money it took in fees while providing no service. However, instead of asking customers where they would like the money sent, AMP opened a new super account in their name. AMP's letter states there are "no exit or entry fees" but says nothing about the fees charged while the account is open. AMP's letter also states in bold type that no action is required: "You don't need to do anything — the payment has already been made."
Xavier O'Halloran from Super Consumers Australia criticised the action saying clients who have had money wrongly taken from them by AMP have now had the money they are owed put in the second worst-performing fund in the category.
"The fund's rate of return of 1.1 per cent over the last year was below inflation and had that money gone directly into a balanced MySuper account, they would have earned 6.89 per cent."
A spokesperson from AMP confirmed the action, in response saying that the majority of money returned was to existing members who still have active AMP super accounts. However, the refunds for those without existing accounts were deposited into newly established AMP Eligible Rollover Fund accounts.
NAB Class Action
Meanwhile, law firm Maurice Blackburnwill launch class action lawsuit against National Australia Bank for delaying the move of $6.3bn belonging to more than 330,000 super customers to low-fee accounts. The Lawsuit will accuse two NAB subsidiaries that acted as superannuation trustees, Nulis Nominees (Australia) and MLC Nominees, of failing in their duty to put fund members first when there was a conflict of interest and that the delay allowed the big four bank’s financial advisers to continue to reap lucrative fees.
Quite obviously, the vast majority of advisers working in Australia have nothing to do with these particular actions, but as the headlines mount, the reputational damage to advisers and their industry cannot be understated.
This overarching damage is reflected in ASIC report 627 titled Financial advice: What consumers really think from August last year. The survey research of over 2,500 individuals indicated that there is significant distrust of the financial advice industry. For example, 49% of online survey participants agreed that financial advisers were more interested in making themselves rich than in helping their customers and 37% of participants agreed that financial advisers did not generally have the customer’s best interests at heart. The report also found that people who had recently received financial advice had more positive attitudes towards financial advisers than those who had not recently received financial advice.
The last point is supported by a recent survey by financial services group Fiducian, who conducted a survey 2,000 clients based on a range of trust indicators which resulted in 98% stating they found their planner to be trustworthy.
The point is clear, when people actually get advice, they know it is trustworthy and worthwhile. Many empirical studies amply demonstrate the quantitative benefits of advice, in our 2019 Australian Financial Landscape Report, we examined 4 recent reports published by prominent fund managers and research houses. We found that via the key areas that advisers directly influence, the direct value added to a consumer’s wealth ranges from 3.0% to 4.4% by using a financial adviser. This itself is a direct counter that advisers should articulate in the face of regulatory headwinds and a loss of trust in the wider community.
Of the top 10 barriers to getting advice, the perceived lack of trust can be regarded at least as equal highest. From ASIC’s Report the top barriers include:
- Too expensive 35%
- Financial circumstances are too small 29%
- Like to manage finances myself 26%
- Don’t trust financial advisers 19% - Trust issue
- Can’t see the value in consulting a financial adviser 18%
- I don’t have financial problems 18%
- Haven’t thought about it 17%
- Haven’t got around to it 16%
- Worried the adviser would rip me off 15% - Trust issue
- Worried I could lose money because of what they told me 14% - Trust issue
Lack of trust remains a key reason for the continued deterioration in the participation numbers for advice. Until that can be reversed, addressing the other major barriers relating to value of advice will be difficult. Low trust is not surprising in an environment beset by a decade of negative attention. Trust is one of the issues that the industry should look to improve and control. Moving towards becoming a profession is a much-needed step to help arrest this perception, but questionable institutional practices and the accompanying negative coverage makes the job harder than it should be for the majority of advisers.