According to the research – which was compiled off the back of more than 3,000 interviews with advice clients – many customers are not accurately perceiving the “independence” of their financial planner or the relationship between their adviser and a parent company, especially where their planner does not use the branding of the institutional owner.
For example, 51 per cent of clients of Financial Wisdom considered their financial planner was “independent” rather than “working for a financial institution” despite the ownership of the Commonwealth Bank, whereas only 21 per cent of Commonwealth Financial Planning clients perceived their planner to be “independent”.
Similarly, 48 per cent of (NAB-aligned) Godfrey Pembroke clients perceived the group as independent, while 37 per cent of Retireinvest (ANZ) clients and 33 per cent of Count (CBA) clients believed their adviser was independent, respectively.
Roy Morgan spokesperson Norman Morris said the consolidation of the advice market by the larger financial institutions made the term “independent” more important.
“The ease of obtaining wealth products and the increase in people using the direct channel means that the retail funds management sector will increasingly rely on their adviser network an advice to retain customers, but at the same time be acting in the best interests of their client,” Mr Morris said.
“With a large proportion of advisers being owned by fund managers the need for clients to understand the extent to which their adviser is independent will become critical and should not be confused by branding,” he added.
The findings follow a report put out by the Australian Securities and Investments Commission (ASIC) yesterday indicated the regulator has concerns about the increasingly concentrated ownership of the advice market.
The ASIC report found that “around half” of the 21st to 50th largest licensees are “either wholly owned or majority owned by a product issuer” and that the “majority of licensees’ income was received from product issuers”.
These two factors may “give rise to both potential and actual conflicts of interest, especially where advisers recommend products issued by related parties”, the report stated.
[quote name=”Neil”]The ASIC definition of ‘independent’ is ridiculous in any event. The definition should be about whether or not a product manufacturer has ANY ownership interest in the planning house and NOT whether any remuneration is received via a third party.
I agree Neil. We are a self licenced practice, deal only in direct equities and ETFs. Charge a fee for service but because we take a commission from the universe of insurance providers as we are yet to find an effective method to charge the client for the underwriting process. (We rebate the premium once completed, its the ones that are in suspense for months and then fall over), we are unable to classify ourselves as independent. We have no alliance, a product provider owns no part of our business and we have the universe of investment and insurance providers to choose from (apart from instos, but thats their choice, not mine)
There is also a regime called choice. Not one product suits every client.
I’m confused, isn’t all this just a shell. If there was only one portfolio that would fit every client to the max it would be a monopoly. But there are so many options available to choose from, so many fund managers to choose from + costs associated with them, declaration of the remuneration. We want the client to make money, that is why we do what we do. Best interest is shop around for the optimum value for money vs return. Who gets it right every time? Those who do the wrong thing – they get caught out or clients walk. AS far as ASIC is concerned I think they are soft target butchers.
I fear that few planners truly understand the depth and breadth of the meaning of independence. Underpinning all that is FoFA, is hundreds of years of doctrines and legal principles called Equity from which an advisers fiduciary duty and obligations toward their clients is drawn. If an adviser places themselves in a position of conflict of interest with their client they are potentially in breach of their fiduciary obligations and if the courts are unable to prosecute poor behaviour by an adviser based on the existing regulatory regime I am sure they will revert to an advisers fiduciary duty in a heartbeat. Now I’m not saying that an institutional adviser is any less honest, diligent or professional as the best advisers in the industry. However I am querying whether an adviser can meet their fiduciary obligations to their client while working for a product issuer be it a bank or vertically integrated Dealership?
The ASIC definition of ‘independent’ is ridiculous in any event. The definition should be about whether or not a product manufacturer has ANY ownership interest in the planning house and NOT whether any remuneration is received via a third party.
I explain this to all current and potential clients and they all agree that the ASIC definition is stupid.
just shows to go ya. and there I was thinking we were ALL doing this very clearly all along. Clear disclosure IS a must, obviously the aligned operators think otherwise ( apparently) or maybe their compliance operates under different rules!!!!
ASIC can solve this problem really easily and force the banks and owned dealer networks to very clearly show ultimate ownership of 85% plus of adviser by large institutions. Of course the banks will hide the true ownership unless they are made to clearly badge all products, advice, dealer groups, etc with the ultimate owner.
Where was this in FoFA ASIC / Silly Billy Shorten, you were both clearly informed of this ongoing problem but prefer to ignore it. WHY ? what is the hidden agenda, all advice via banks and union funds in future ??
Haha…most of us advisers saw the writing on the wall along time ago….we can read trends and understand how bad policy distorts markets…..unfortunately ASIC can’t and Medcraft has the nerve to say our industry failed to recognize trends and needs more regulation….amazingly bad foresight by ASiC…or, was it planned and the recent concern it just a red herring. It’s all about compensation…banks have money, independents don’t.