CFA criticism unwarranted, say industry heads

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Australian financial advice associations have hit back at chartered financial analysts, who say shoddy financial adviser ethics top their list of concerns for the coming year.

An annual survey of Chartered Financial Analyst Institute members has found that concerns about mis-selling by financial advisers – such as failing to offer products suitable to a client’s needs – has worsened in the past year, despite the government attempting to restore public confidence in the finance industry in the aftermath of the global financial crisis.

Almost half (48%) of the 159 Australian members responding to the Global Market Sentiment Survey 2014 regard mis-selling as the most serious ethical issue facing the local market in the coming year, rising from 36% last year.

"Our Australian members are showing increasing concern that the Future of Financial Advice reforms have yet to address the issue of mis-selling by financial advisers,” CFA Society Perth president Jason Chesters said.

“This is perhaps exacerbated by indications that the new government will change 'best interest' provisions as part of the rollback of FOFA. We acknowledge the government's desire to reduce red tape but encourage it to implement policy that improves Australians' access to high quality advice that is in their best interest."

But Association of Financial Advisers CEO Brad Fox told Wealth Professional he is uncertain what CFA members see as the problem. “I’m not sure what their motive is in the survey. They are commenting on an area they don’t have an intimate knowledge of.”

He said to keep in mind it is a survey rather than a research paper, and it is unknown whether they were asked closed or open ended questions.

The "real ethical issue" is making sure those in the financial world are properly licensed for the work they do, he said.

Financial Planning Association CEO Mark Rantall said the CFA members’ opinion is “interesting”, but as they are involved in investment management he is unsure how they would know enough about advisers to come to that conclusion.

“Financial planning has undertaken legislative reform over the past 12 months, and the structure of that reform means clients’ interests must be put before all others. I’m not sure how one particular group could form an opinion like that when the reform took effect from 1 July.”

FPA members have always had to put clients’ interests before others, as ethics are particularly important when looking after people in a fiduciary capacity, Rantall said.

“Financial planners have come a long way in their evolution.  The vast majority do what they do because we want to help people. A small minority – it could be inadvertently or in the worst cases, deliberately – may not put their clients’ interests first. But this number is not inconsistent with other professionals like accountants, lawyers or CFA members.”

The annual CFA survey measured the opinion of 6,561 CFA charterholders and members globally, 1,575 of whom are in Asia Pacific.

Within Asia, members consider market fraud as the most serious ethical issue facing their local markets, and controversial trading practices raise the most apprehension in the US.

Globally, mis-selling is much less of a concern and global respondents believe its importance in their local markets is decreasing. 
  • Innocent Observer on 20/12/2013 10:40:28 AM

    It would be good to see what is meant by "mis-selling".

    If respondents' interpretation was in relation to advisers' use of investment products that they don't have sufficient knowledge of (either because they rely on external ratings agencies or their dealer's APL) then I think it's a fair point to be concerned. After all, there are many advisers licensed to provide investment advice who are not sufficiently knowledgable to perform their own assessment of investments (and many dealer groups' APLs are ridiculously large; some into the thousands!)

  • Josh on 20/12/2013 11:13:01 AM

    This is my uneducated opinion/rant. So here's the people that are (1) the designers of the engineered investment products (that fail), (2) the gatekeepers to the intelligent analysis of markets etc (with a strike rate of say 60%), (3) with the percieved moral high ground (they never get prosecuted because they can hide behind an employer with deep pockets), (4) who don't have any first hand experience with planners (because they are too smart to use one), throwing stones at the people who use their wares. Be careful what you wish for.

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