In a submission to the FOFA Senate inquiry, the Boutique Financial Planners industry body – a sub-group of the FPA representing self-licensed firms of less than 20 authorised reps – called for a more sensible approach to the legal definition of the restricted term “independent”.
“While not in favour of any re-introduction of commission payments for investment and superannuation product sales, if it is to occur, it must be linked to the introduction of a workable legislative definition of independent financial advice so that consumers can properly identify whether they are dealing with an employee or agent of a financial product manufacturer or with a non-aligned professional financial planner,” said the submission, penned by BFP president Wayne Roggero.
“The BFP has always believed that the FSR regime introduced in 2004 contained a structural flaw in allowing financial product manufacturers (banks, insurers and super funds) to “dress up” the provision of information regarding their products, and the selling of their products by employees, agents, or authorised representatives licensed through AFSLs owned by them, as ‘advice’,” the submission reads.
The lobby group states it will not support the proposed exemption unless there are additional amendments to ensure that licensee ownership is “fully disclosed” on all marketing materials – as was the norm pre-FSR – and/or a “clear distinction” is made between “financial product sales people” – in which the BFP includes “representatives of AFSLs owned by product manufacturers” – and “non-aligned, independently-owned financial advisory businesses”.
Indeed Wildcat, I am not saying it is ONLY trust, but inter alia, consumer’s trust and confidence in the financial services industry is the main issue regulators are trying to change through legislation. Gerry, we are all biased in this matter. The number of truly independent financial advisers in Australia number a handful and access to them by mum and dad clients is limited i.e. these advisers have more than enough clients knocking on their door and as a result charge a premium for their services. If there were more independents, more people will be able to access them. Product licensees are important. I am not saying get rid of product experts. Financial products are part of a client’s solution. I am saying we need to distinguish between professional strategy financial advisers from product experts. Only 1 in 5 Australians access personal financial advice. Those who are happy clients of financial advisers are in the minority relative to the population. What is a financial adviser?
Angelique, if you are indeed an empiricist, you would be aware that several extensive surveys have shown that financial planners are highly trusted by those Australians who have experienced advice. On par with the most trusted professionals in society. Your conversations friends and neighbours do not reflect the wider experience. As a profession we need to improve in certain areas. But if you want to enter the debate, you will be taken more seriously if you do your homework and act in a more balanced and considered fashion.
Angelique…your discussion sounds somewhat bias towards getting the answer you want, which as we know does not look good in data analysis/research land. If most people ask for independent advice then why do the banks have so many clients on their books?
People do tend to associate market losses with bad advice “I lost money, will never see a financial adviser again”. I would suggest the industry has a problem with risk profiling and not explaining the risk of losing money properly….bad advice aside
I would suggest the main factor people consider is TRUST and then COST. I’m currently with a non-aligned dealer and from what I can see they’ve had their fair share of bad advisers.
It will never be a conflict free industry, not in my lifetime anyway…unless you sell no product at all. That might suit a minority of clients.
Angelique, Gerry is right….but so are you. “any tom dick n harry” comment is on the money.
Professionalisation is the issue, the fault lies mostly with the industry representative bodies. Despite “best interests and technology” being a step in the right direction there is nothing like having proper professional standards and ethics that are self regulated – then you will manage the conflicts simply.
Miss-selling by sales people and lack of professionally managed advice is the issue.
The banks are to blame for the product push, the ISA is to blame for taking every step they can dream up to undermine the few professionals that do exist – so the ISA can feather their own nest.
No wonder we have issues!
If it is costs of advice that is at stake here then why are the regulators regulating financial adviser and their licensee behaviours and ethics?
Gerry, I could not disagree more. The people I have been talking to never raise the issue of cost of advice as they can afford financial advice. All the people I speak to on a daily basis from mums and dads (my neighbour today is another example as she asked about my research) to executives all say the same thing, i.e. they do not trust financial advisers. Advisers just want to use their money to make money for themselves. My neighbour mentioned they were sold an investment that they regret ever agreeing to. The people I bump into who have used financial advisers all tell me that they will never go to another adviser again because once they have followed the advice, they end up worse off or no better than if they did nothing at all. Executives tell me that the technical knowledge (education) is well below par and they sense the adviser knows more about the financial product than the strategy. They recite stories of their parents and friends who have similar experiences.
I think many people don’t get advice because IT COSTS TOO MUCH and most of that cost flows from high levels of regulation and compliance…and that high level of regulation was obviously required because any tom dick n harry could get a job giving advice after doing 3 diploma subjects.
But now that client Best Interests is a legal requirement and the barrier to entry is higher and technology is far more advanced, I was looking forward to a relaxing of the regulatory requirements leading to a higher uptake of affordable advice.
That has not happened…and is it any wonder that advice costs are unaffordable for the masses. How hard is it to consolidate a few small super funds for a client these days…ridiculous amount of work involved and if you charged by the hour there would be nothing left for the client to rollover.
Ben, I have not quite completed my doctoral degree yet. Yes, I have asked clients. I am not a theorist but an empiricist. I use to be a self-employed authorised representative in my past life for product aligned licensees. You need to ask why is it that only 1 in 5 Australians seek financial advice? It’s a matter of, inter alia, ‘distrust’ they have for product aligned advisers. I know of a recent lady of significant financial means try 5 different advisers and then gave up because their advice document was all about products not strategy. We need to ask ourselves, why is this? Are we product sellers or financial and lifestyle goal achievers?
All good in theory Dr McInnes, but have you actually asked clients what they want? In the real world most will side with a well known brand over independence. In the safe environment of a survey they may tell you they value independence, but that goes out the window when they put their life savings on the line. It is human nature and you can’t fight it. Don’t get me wrong, I agree the current system is flawed and I would be happy if the Government scrapped dealer groups and licensed us independently. But let’s not forget about the clients in this debate. If they don’t feel comfortable, they won’t seek advice. In the vast majority of cases, conflicted advice is better than no advice at all.
According to my PhD research looking at the issue of the relevancy of the current licensing model of INDIVIDUAL financial advisers in Australia with proposed alternative solutions to disconnect financial advisers from product aligned licensees, agency theory says that an agent (financial adviser) should not try to serve two principals (Licensee and client) simultaneously. This creates additional conflicts of interest due to associations between the agent and principals. Most clients ask for INDEPENDENT ADVICE and they have a right to know when dealing with financial advisers who are aligned to product manufacturers and who are non-aligned and independent. A clear distinction will ensure clients then choose whether to go and see a ‘financial product sales adviser’ or a ‘non-aligned independent financial strategy adviser.’ Agency theory intertwined with financial planning theory serves as the rationale for reviewing the current licensing of INDIVIDUAL financial advisers.