Thursday, 4 April 2013

Of Financial Advice and Advisors

Professor Kevin Davis

The Australia-New Zealand Shadow Financial Regulatory Committee releases Statement No. 11 exploring some of the challenges facing the financial advice industry in providing appropriate and quality  advice. The committee offer some suggestions to policy makers for mitigation, to reduce the impact of poor financial advice on future financial wellbeing.

Some recent high profile cases (e.g., Storm, Blue Chip and ING) have highlighted problems arising from poor financial advice and, as a result, prompted various legislative initiatives relating to advisor obligations, fee structures, and the like. In this Statement, we consider some of the challenges facing the financial advice industry and offer some suggestions for how these might be mitigated. 

As a first point, we note that, in contrast to most other expert-service markets, relatively few people make use of financial advisory services. For example, surveys indicate that fewer than 50% of United States households do not use a financial advisor, a figure we suspect is even lower in Australia and New Zealand. The rest, presumably, rely on a do-it-yourself strategy… PDF


  • Aspiring financial advisors and planners should be encouraged to obtain education in finance or economics to at least the undergraduate degree level.
  • Ideally governments should aim to reduce the complexity of tax and welfare benefit arrangements and thus the need for such privately advantageous, but with little if any social value, financial advice. And, correspondingly, educational programmes for financial advisors should be less skewed towards knowledge of the tax and benefits system, and place more emphasis on investment theory and fundamentals.
  • The large parents of financial advice groups should consider using a range of monitoring and governance mechanisms such as “mystery shopper” techniques to assess quality of advice, as well as specialist internal audit/compliance arrangements focused on ensuring quality of advice and product suitability.
  • Governments should investigate the further development of such comparison sites, and that financial advice contracts include information on resources available  for clients to check risks and costs of advice by reference to such sites before the contract is finalized and advice implemented (during a required cooling off period).

The full statement is being released at 8.30 am Friday NZ time at the  4th Financial Markets and Corporate Governance Conference in Wellington NZ. 

For more information on ANZSFRC, please visit our website at:

Media contact details:

Professor Kevin Davis
Research Director, Australian Centre for Financial Studies &
Professor of Finance, University of Melbourne
+61 3 9666 1050

Professor Glenn Boyle
Economics and Finance, University of Canterbury
ph +64 3 364 3479

Following the example of the Shadow Financial Regulatory Committees in Asia, Europe, Japan, Latin America and the United States, a group of well known professors from Australia and  New Zealand, who are all experts in the fields of banking, finance, and the regulation and supervision of financial institutions and markets, set up the Australia-New Zealand Shadow Financial Regulatory Committee (ANZSFRC). The ANZSFRC had its inaugural meeting in Sydney in December 2006 when its first statement entitled “Managing Bank Failure in Australia and New Zealand: Rapid Access Matters” was issued during the 2006 Australasian Finance and Banking Conference. Co-chairs of the ANZSFRC are Prof. Glenn Boyle and Prof. Kevin Davis. Glenn Boyle is Professor of Finance at the University of Canterbury, Christchurch. Kevin Davis is Research Director of the Australian Centre for Financial Studies and Professor of Finance at the University of Melbourne.

ANZSFRC Statement April 201372.47 KB