Why more and more advisers are demanding independence

In Australia, the independent advice movement has been growing steadily in recent years. This comes as the big banks and institutional dealer groups continue to face heavy scrutiny for mis-selling services, charging fees for no service and pushing product.

For all their sweet talk and ad campaigns about delivering exceptional customer experiences, the big end of town instead found themselves in the witness box of the Hayne royal commission last year.

The fallout of this has been a collective effort by the big four and AMP to remediate customers and, in the case of the big four, to be rid of wealth management. This approach says a lot about what big groups really think of their clients. 

But it would be naive to think that Australian financial advisers are leaving the banks to join the independent movement purely to escape the bad news surrounding their big brand AFSLs. The IFA movement has its own organic energy and is clearly growing in other parts of the world as well.

Speaking at the AIOFP Conference in Lisbon, Portugal on Saturday (22 June), Capco management consultant Isaac Halpern said ‘breakaway advisers’ (as they’re called in the US) have become a significant and growing population of the American advice sector.

“What we are seeing in the US, and I understand the same trend is happening in Australia, is a big move to independence,” Mr Halpern said.

“In the US they are referred to as ‘breakaway advisers’ who are essentially leaving the large bank wealth managers. We have a client who is a large bank wealth manager and they were concerned about this trend. They asked us to find out what was going on and develop a strategy around it. As part of that I interviewed 30 independent advisers who had left the large banks in the US to start their own practices or join IFA networks.”

The Washington, DC-based management consultant predicted that a desire to make more money would be the key motivator for most advisers to break away from the big instos. But this wasn’t the case.

“The top motivator was actually the desire to be independent and run their own business; to be entrepreneurs and to provide truly independent advice to their customers, which wasn’t happening at the banks who were pushing product,” Mr Halpern said.

It’s easy to see why big institutions fail to understand what drives advisers to leave, and why they need to use consultants to figure out what they should already know: the motivation of IFAs, as Mr Halpern told advisers in Portugal this week, is aligned to the outcomes of their clients.

Conversely, the motivation of a big bank is aligned to the big bank and its shareholders. The customer does not come first. This was made very clear during the royal commission.

There's no doubt that the IFA movement is a threat to big groups. But independent practices face their own challenges. One of the most striking being a distinct lack of scale and investment power required to keep pace with an increasingly digitally driven consumer.

Banks and superannuation funds have the scale, deep pockets and data to deliver powerful digital advice offerings to the mass market. Independent advisers of the future will need to find a unique selling point as this trend plays out.

Those who can build digital offerings that reflect the high level of personalisation and care their clients receive through traditional, face-to-face channels will have an edge over the big banks and their independent peers.