With inappropriate advice continuing to “taint” the industry, advisers must prove their recommendations are suitable, argues FinaMetrica.
The financial risk firm’s co-founder, Paul Resnik, has proposed advisers embrace new criteria for risk advice.
“There are advisers and advisory businesses out there who aren’t giving suitable advice because they are failing to take into account the needs of their clients and/or their advice is being compromised by commissions and the business models under which they operate,” Mr Resnik said.
The comments come in the wake of an ASIC report condemning the quality of the life risk sector and data from the Financial Ombudsman Service (FOS) showing complaints about advice remain prevalent.
According to Mr Resnik, advisers should consider adopting FinaMetrica’s 'Five Suitability Proofs', which he claimed encapsulate best practice for risk advice.
“What we need to see is more advisers take greater responsibility for giving suitable advice,” he said. “Best practice in the advice process involves matching the specific needs of clients to products and services.”
The Five Proofs require advisers to:
A recent investigation by ASIC found an “unacceptable level of failure” in the life risk sector and identified commissions and financial incentives for advisers as the key drivers of poor quality advice.
Meanwhile, the Financial Ombudsman Service annual review found 539 disputes were lodged related to managed investments in the last financial year and 60 per cent of these involved a financial adviser.
Around 31 per cent of disputes pertaining to SMSFs related to inappropriate advice while 32 per cent of securities disputes involved a financial adviser.
“The FOS report reveals many of the disputes involved banks, reflecting their increasing dominance of the advice industry,” Mr Resnik said.
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