Consumer chief executive Sue Chetwin says the purpose of the exercise was to see if the standard of financial advice had improved.

She says the answer was no and the results shocked the institute.

"This is an industry in serious need of reform," she says. Her view is the proposed regulation regime is too little too late.

Overall Consumer mystery shopped 33 financial advisers from large institutions with in-house advisers and agents, sharebrokers and nationwide adviser chains, to small standalone firms. An expert panel assessed the quality of advice and information in the 17 plans it received.

Only three out of 17 advisers produced plans that were rated "good" by the expert panel, she says. The remaining 14 were rated as "disappointing" or were "rejected".

"So many issues were found it was hard to know where to start. There was poor analysis, unclear costs, advisers portraying themselves as independent when they were not, high costs and bad products."

Evidence that the analysis and advice was done poorly reflected badly on the competence level of many practising advisers.

"We're concerned that skill levels are low and will remain low, unless competency standards are included as part of the adviser authorisation process due to come into force next year."

Of the 17 plans received, 10 were investment plans and seven were comprehensive pre-retirement plans. The shoppers looking for pre-retirement plans had, or were likely to soon have, significant mortgages, other debts, bank deposits and other investments. Most were in KiwiSaver schemes.

They were looking for savings and expenditure budgets that would help them meet their short-term goals and eventually provide a nest-egg. Some also needed advice about insurance, wills and enduring powers of attorney.

Chetwin said often they were told to invest too much in managed funds at a time when it was likely they would also have a large mortgage. Advisers don't receive commissions from providers for recommending debt-reduction strategies.

Chetwin said most of these pre-retirement plans were of little practical help. Costs ranged from nothing to $1,200.

In eight out of the 10 investment plans shoppers were given no meaningful explanation as to why they should take up the recommended investment strategy. And in seven out of the 10 plans the panel could not definitively work out the initial and ongoing costs of the advice.

"Shoppers were given conflicting information about service fees - and sometimes there was no information on costs. In half the investment plans, fund-management fees weren't adequately disclosed."

Too often advisers gave the impression they were knowledgeable about a range of investment products and might recommend any but in the end shoppers were told to put most of their savings with one provider, and were given no explanation of why this provider was preferred.

Some of this "independent" investment plan advice cost more than $1,200. 

"Consumers need access to unbiased advice but this won't become an industry norm until commissions are banned," Chetwin said.

The expert panel who reviewed the plans comprised: Gareth Morgan client adviser Jonathan Glass, Financial Fitness principal Craig Wylie and BNZ investment manager Tony Cross. Both Wylie and Cross were nominated by the Institute of Financial Advisers and attended the panel on alternate days.

Other panelists included Motu Economic and Public Policy Research fellow Andrew Coleman who is also a lecturer in economics at Victoria University.

The Retirement Commission, the Securities Commission and the Ministry of Economic Development help fund this project.

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