How do I do that?
The Australian Consumers Association (ACA) and the Australian Securities and Investments Commission have just released their latest research on the financial planning industry. They say its track record in improving standards is disgraceful.

The two groups sent consumers into the market to get financial plans. These plans were then evaluated by an expert panel that rated more than half of the 124 financial plans obtained by the consumers as "borderline" to "very poor" and rated only two as "very good". (A further 23 were rated good.)

So if you’re wondering about the quality of your own advice, a good place to start might be to check it has none of the shortcomings highlighted by the study.

What were they?
It is a long list, but the ACA says there were three main areas where planners fell down: they ignored their client’s needs and objectives; produced generic plans with insufficient attention to detail; and, recommended investments without proper justification.

"The advice often seemed like thinly disguised product selling," it said in the latest issue of Choice magazine.

The expert panel found many planners didn’t properly explain the investment risks involved in the plan and that recommending "too risky" investments was much more common than recommending overly conservative investments.

Many of the plans were computer-generated with little effort made to adapt them to the client’s circumstances, and the investor’s goals were often ignored. The report says that even though the investors asked for a comprehensive financial plan, many offered only limited advice (without stating that it was limited), and planners often ignored alternative strategies to investing in managed funds.

Clients were often told to sell their existing investments without being told why the new investments would be better. While planners are supposed to be up-front about disclosing fees and commissions, the report found that many plans recommended expensive investments without justifying their cost, and information on ongoing fees was sometimes sketchy.

It says many plans also recommended the investor borrow to invest, but advisers suggesting products such as margin loans did not always disclose the commissions they would earn.

So what should I look for in a good plan?
First, it should be easy to understand. A good financial plan should accurately state your financial position and your goals and objectives, explain how the plan will get you from point A to point B and show why this option is the best one for you.

If the plan is full of generic gobbledygook, but does not take you clearly through these points, the chances are that it has been mass-produced and is not specific to you.

It should clearly state your risk tolerance and investment time frame and explain in honest terms the risks involved. No investment is foolproof, and the plan should look at what might go wrong.

Choice says the plan should look at all aspects of your finances – including your tax position, retirement, insurance, and estate planning needs – and explain the reasoning behind any recommendations to buy or sell particular investments. The best plans, it says, did a good job in explaining the issues and alternatives available.

Needless to say, it should recommend a spread of different investments from different providers and explain how the recommended investments compare with similar products in terms of fees and performance. Choice says it should also contain independent, up-to-date research on any products recommended and explain how the investments meet your goals, needs and risk profile.

It should also set out the fees (both direct and indirect) that you will be paying in a way that you can easily understand.

What if I’m not happy with the plan?
If this is a new plan, Choice says you should ask your adviser to fix the shortcomings, or reject it if you are still not satisfied. If it is an existing plan, your first step should also be to contact your adviser and ask to have any uncertainties or concerns clarified or resolved. If you still have a problem with the plan, particularly if you feel you have suffered through inappropriate advice or misrepresentation, you may have cause for an official complaint.

Contact the Financial Industry Complaints Service on 1300 78 08 08 for more information.

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