Australia's financial planning sector may suffer a blow to confidence in coming months with ASIC's Shadow Shop survey predicted to show significant levels of poor advice still exist across the industry.
The corporate regulator mentioned preliminary results from the survey, due for public release in March, in its supplementary submission to the inquiry into the Future of Financial Advice law reforms.
"ASIC is currently conducting a shadow shop of financial advice related to people retiring," the submission said.
"While the shadow shop is yet to be completed, the current indications are that we will be reporting a significant level of poor advice."
As well as revealing early details of its survey findings, ASIC also used its submission to address areas of concern regarding Australia's level of advice.
A key area of concern is conflicts of interests, such as those created by associations with product providers, ASIC said.
"While conflicts of interest are required to be disclosed to clients, this is generally not sufficient to counteract the clients' own understanding of the role of an adviser," it said.
"Disclosure is an important regulatory tool to help consumers understand what they are paying. However our experience has shown that it is a poor tool for helping consumers to understand the impact of a conflict of interest.
"Retail clients do not know how to discount the objectivity of the advice they are receiving based on the size of the conflicted remuneration disclosed."
To back its claims, ASIC quoted findings of last month's ANZ Survey of Adult Financial Literacy in Australia report.
"One recent survey found that of the respondents who had chosen a financial adviser, 40 per cent said they do not consider the possibility of conflict when their planner made investment recommendations," it said.
"We consider there is significant scope for the interests of advisers and their clients to be more closely aligned. We consider that disclosure alone is unlikely to achieve this. Disclosure may inform the client but it does not actually align the interests of the adviser and their client."
ANZ's Adult Financial Literacy in Australia survey found that 42 per cent of respondents would not trust financial professionals nor accept what they recommend, ASIC said.
Results from ASIC's 2006 Shadow Shopping survey found 16 per cent of the respondents said advice given clearly did not have a reasonable basis in some respect and a further 3 per cent said it probably did not have a reasonable basis based on the information ASIC received, the submission said.
"Despite this, of the advice by AFS licence representatives where ASIC judged the advice to clearly lack a reasonable basis, 85 per cent of retail clients were satisfied with the advice they received," it said.
Representatives of ASIC have offered members of the Parliamentary Joint Committee a confidential briefing about the preliminary findings next month.
ASIC will release the full results of the survey in March.
