Consumer Access to Financial Advice

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Consumer Access to Financial Advice

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Posts under the topic: Consumer Access to Financial Advice

Posted: 17/02/2012 5:36:31 AM

Lurker 0  points  Lurker
  • Joined on: 31/05/2011 5:09:07 AM
  • Posts: 2

CPA Australia and The Institute have rightly written today 17 february 2012 to Minister Shorten on the critical need to give consumers greater access to financial advice.

I totally support the view that it is essential that Consumers have an opportunity of balanced advice from independent and objective members of CPA Australia and The Institute. These professionals must I submit have the opportunity to say “High Risk” to an investment being touted to a Client. The Client may in my view well feel very disappointed in the professional accountant who says nothing when he/she (the accountant) sees the Client being put at risk. A professional accountant is more than a bookkeeper.  

I make a distinction between advocating for investment in a particular product, and advocating against it. Advice for and against is surely a reasonable part of the checks and balances of the financial system. It may be a significant difference that the financial adviser earns a commission from the client investing whilst the accountant will earn no commission from advising against it.

On the question of expertise, there is no doubt that modern financial instruments may be very complicated structures. Consumers are entitled to specialist expertise supporting argument to invest in complicated financial instruments. It does not follow that other views should be prohibited from being put to consumers.  

The checks and balances did not generally operate in the cases of Collaterised Debt Obligations (CDOs), where losses are still being counted. Financial planners pushed investments in CDOs and gained substantial commissions, and the investors in many cases have been left with appalling losses.

I quote an example of advice from an accountant being appropriate. An organisation contemplated investment in CDOs distributed by and advocated by a major Australian bank. The accountant noted that over 6 defaults in the reference portfolio of 100 organisations would result in losses in the principal invested, and brought this to the attention of the client. In his view the investment was risky, because he believed that in a recession (as occiurred in 2008) the probability of multiple defaults is high and the safeguards called sector caps in the investment structures may not be adequate. The bank sponsoring the CDO argued that the sector caps could be relied upon, and much sensitivity analysis was quoted by them to support their argument. The client listened to both arguments and decided not to invest in the CDO – and thereby saved themselves much angst concerning a multi-million dollar investment. 6 defaults were recorded.

In summary, I believe it would be very unreasonable to deny accountants the right and opportunity to advise their clients against investments which they believe may be high risk. There cannot be a responsibility on accountants to forsee losses in highly technical areas in which they have no specialist training, but they need to have the liberty to argue a case.

Geoff Williams 17 Feb 2012.

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