Large proportion of Australians unable to understand advice
A large proportion of Australians are unable to tell the difference between good and bad financial advice and are unaware of the techniques used by advisers to manipulate critical financial decisions, according to a major university study.
Following research conducted by the University of Sydney Business School, the school's Professor Susan Thorp said almost half of all Australians have poor financial literacy, with many turning to financial advisers for help with decisions on matters such as superannuation investment.
Professor Thorp has subsequently called for a tightening of regulations to protect “vulnerable” clients.
“Even before our research began, we were aware that many people who attend financial advisers view the advice that they are given as very good, even when an objective evaluation of that advice found it not to be so,” said Professor Thorp.
Puzzled by this, the research team set out to “unpack the process by which this trust relationship between the adviser and the client was formed”, she said.
The researchers produced videos of several advisers, with some providing good and others providing bad financial advice. The videos were then shown to groups of people who were asked to identify which of the advisers they would trust the most.
“We found that people on the whole were able to tell the difference between good and bad advice on the topics that were relatively straightforward, such as paying off credit card debts,” said Professor Thorp, “but when it came to more complicated decisions, like superannuation investments, far fewer people were able to tell the difference between good and bad advice.”
According to Professor Thorp, the research indicates a need for higher qualifications and standards for financial advisers. She has also called on the advisory industry and regulators such as ASIC to more rigorously enforce laws designed to protect consumers.
“A lot of people are aware of being modestly manipulated by an adviser,” Professor Thorp said. “What’s important here is that the skill gap between the client and the adviser can be large.
"The potential for misunderstanding or manipulation is quite high in this situation. In other words, clients are vulnerable so they need to be properly protected.”