May 3, 2018
There might be some lessons to learn for ASIC and financial advice providers in the future from the US. One way to prevent, or at least reduce, mis-selling would be to restrict the product suite available to customers based on their behavioural profile and personal circumstances. Whilst the US structure is not directly applicable locally. The spirit of the process is relevant.
In order to ascertain which customers are eligible to move beyond 'Simple to Own' products you need to assess their capacity for uncertainty and financial knowledge.
Simplistic one-dimensional risk tolerance is wholly unsatisfactory at achieving this aim, and misleading. At a minimum it needs to be a two-dimensional approach (willingness to not have certainty and capacity for uncertainty of achieving your goal/ desired outcome).
The advice process has to change in Australia. Reliance on one-dimensional risk assessment to determine an investment strategy and product suite is another example of a weakness in the current process.
Remediating these problems is integral to our digital approach to delivering better advice outcomes at OnTrack Retirement
Financial Planning Association (FPA)
Industry Super Australia
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May 3, 2018