“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”
Last year, ASIC fined financial services group Findex a total of $21,600 for using the words ‘independent’ and ‘non-aligned’ on its website. Currently, s923A of the Corporations Act prevents financial advice companies from calling themselves ‘independent’, ‘impartial’ or ‘unbiased’ if they are owned or licensed by a product provider and if they accept commissions from product providers. While the term ‘non-aligned’ is not specifically restricted within the law, ASIC is concerned that it could be seen as false or misleading.
But ASIC is now threatening to further narrow their definition of independence by restricting use of the phrase ‘independently-owned’ and reviewing whether those firms that charge asset-linked fees can call themselves independent.
ASIC has done much sterling work of late cleaning up the financial advice industry, but we would argue that its definition of ‘independent’ is way off base. They have requested feedback from industry practitioners on this topic and this is ours.
ASIC deputy chair Peter Kell recently said that “the accurate promotion of financial services, particularly around the issue of independence, is critical in order for consumers to make confident and informed financial decisions”.
Mr Kell is spot on.
He continued, “This action puts the financial services sector on notice that ASIC is serious about tackling the inappropriate use of the term ‘independent’.”
If you are the owner of a financial advice practice and are considering obtaining your own licence, trying to minimise potential conflicts, then this all must sound mighty complicated and bureaucratic to you. It may even prevent you from crossing the Rubicon and obtaining your own AFSL.
Building barriers to independence is surely not the outcome ASIC is seeking. In fact, earlier this week Mr. Kell questioned whether vertically integrated organisations could put the client’s best interests first. So why is ASIC so sensitive to the word ‘independent’?
ASIC says its aim is to ensure consumers are not misled and are able to “make confident and informed financial decisions by removing conflicts of interest”.
This is a noble aim, but also a pipe-dream.
No business operates without any conflicts of interest. Take my recent visit to the surgeon as one example. Surgeons are regarded by the community (and by us) as paragons of virtue. However, my ENT surgeon faced a colossal conflict of interest. Tonsils out or tonsils stay, I inquired? “Out” he said. If I still had my tonsils, he would now be $2,000 worse off – a staggering conflict of interest. I proceeded, incidentally, for two reasons; firstly, because he was referred to me by a doctor that I respect and trust, and secondly, because of his professional qualifications and training.
It is trust that makes the ethical wheels of business go round, not the idealistic pursuit of zero conflict. Removing conflicts is impossible; minimising them and fostering trust should be our industry’s main aim.
There are various lines of defence against conflicts for consumers. The most pernicious is the ownership of an advice practice by a financial product provider. Second, is the ownership of the AFSL by a product provider (less conflicted, but some dealer groups are more ‘hands-on’ than others). Third, is the payment of commissions by financial product providers. These have been outlawed in asset management by FOFA (thank goodness) but the argument to remove them from insurance products is much less clear cut.
It is our strong view that Australia’s chronic under-insurance problem would be further exacerbated by the removal of commissions.
No topic in wealth management so polarises opinion as to whether to charge a fee-for-service or to link fees to assets under management. A fee for service is often a number plucked out of thin air.
Firms that declare themselves as fee-for-service inevitably link their fees to the quantum of the asset management job anyway. But this is only as it should be. The greater the client assets, the greater the risk and the greater the responsibility. It would be absurd to bill the Packers the same as a working class family – not to mention spectacularly regressive. And in any case, the way a private business charges its clients is a matter for itself and its clients – it’s not an opportunity for moral grandstanding.
A fee expressly linked to the job in hand is open, transparent and honest. We cannot understand why ASIC thinks asset-linked fees have any impact on independence and urge them not to pursue this line of thinking.
Stanford Brown is owned by four individuals and we have our own AFSL. We are free to choose from a broad spectrum of managed funds and insurers that meet the high standards of our investment and insurance philosophy.
We disagree with Humpty Dumpty – one cannot simply choose the meaning of a word to suit one’s own agenda.
That we cannot call ourselves ‘independent’ is nonsense, and it’s plainly nonsense. It’s time for the application of some good, old-fashioned common sense.
Jonathan Hoyle is the chief executive of non-aligned firm Stanford Brown
Very well written Jonathan, totally concur to your views expressed, there is a very vocal minority of ‘holier-than-thou’ who holler the loudest and believe they have the moral high ground, simply based on how they charge clients for the work; and some of the work I have reviewed from one such firm has been very ordinary!
How a firm charges as long as it is transparent and the clients are happy to pay it, is no-one else’s business, let alone competitors or over zealous Labor appointed regulators.
Also keen to get an ‘independent’ view on AFSLs who have recently turned into product providers by establishing an inhouse asset management business to help reduce cost and increase revenue.
[quote=Matthew Ross]Not too dissimilar except for the fact that Jonathon’s firm charges % of FUM and receives commissions on insurance?[/quote]
As always Matthew, your response is automated and robotic in it’s design.
It’s like you have been through an intensive indoctrination programme and are now a member of a brainwashed cult!
Ron L. Hubbard wasn’t the original and founding leader of IFAAA was he?
Interesting observation re the IFAAA. I think you may be onto something!
They seem to be a well organised, highly motivated band of zealots. They constantly claim to represent the moral high ground, yet when you analyse their arguments they lack logic and have a strong underlying element of commercial self interest. I wonder if you have to do a Scientology style “personality test” to join the IFAAA?
Quite the opposite, you will find. A bunch of like minded people came together to create the IFAAA. Other people who have the same feeling and belief about how advice should be delivered are attracted to it.
You will find that the people in the association are confident, have conviction, strong belief in themselves. They don’t live in fear.
They have the conviction to make comment without hiding behind a mask. They have the courage to put their name to their comments.
Which begs the question…what are you afraid of? Why can’t you put your name to your comments?
I welcome the debate about these topics and hope that I’ve matured to a point where I don’t get personal or tell others the way it should be done. Not here to do that, but rather to have a voice so that others can join if they have the same belief.
Big difference Mat is that your bunch appears to be hell bent on putting all other forms of business model to the torch, in a frenzied puristic pyretic radical extremist way, as if you somehow have the only view that is right.
The rest of us pretty much want to simply get on with looking after clients and getting on with each other, and allow each business to decide their own model, as long as the client is being appropriately looked after and is happy.
Conversely, if you look up the word ‘zealot’ in all its negative connotations, it applies to your group.
Every time Fergus writes, especially about COI, it confirms nothing except his overall ignorance and incorrect interpretations (and potentially an issue with his cognitive & comprehension skills?).
A few people from our bunch John are getting under your skin, not all of them. Bite back against those that you have an issue with by all means, but be respectful to those that aren’t.
Have a read of some preliminary research findings:Is the term ‘Independent’ misunderstood and are Financial Advisors in Australia Truly Independent? A preliminary analysis
https://www.researchgate.net/publication/313088805_Is_the_term_'Independent'_misunderstood_and_are_Financial_Advisors_in_Australia_Truly_Independent_A_preliminary_analysis
This research shows that very few people understand the Corps Act definition of “independent”. No surprise there. That is because the Corps Act definition is well removed from common usage and understanding of that term. It includes an additional overlay of “payment method” restrictions which have nothing to do with independence. I hope you didn’t spend too much time on this Angelique.
Jonathan it may be just easier if you call your firm NON_BANK owned as this is the reality of your firm’s situation. If meeting the definition of INDEPENDENCE is important to you, then meet the Corps Act criteria and call yourself INDEPENDENT like all of the other AFSLs who have structured their businesses to comply with the Act. Why should it be easier for your firm to meet the definition.
RE: “If you are the owner of a financial advice practice and are considering obtaining your own licence, trying to minimise potential conflicts, then this all must sound mighty complicated and bureaucratic to you. It may even prevent you from crossing the Rubicon and obtaining your own AFSL.” If a small firm like ours can do it (structure the business to meet the Corps Act) why can’t a larger firm such as yours?
I assume that you and others want to use the term INDEPENDENT as consumers of advice are actively seeking out such advisers due to the previous (and future) financial advice scandals…this is why it is important for the term not to be watered down and to be used only by those firms that have made it a focus of their business to reduce as much as possible any conflicts of interest.
PS – your ENT specialist charged a flat fee for his services (which is not necessarily conflicted) it could have been conflicted if he charged you a higher fee just because you earn more or have a larger bank balance and or also received another payment from a medical supplier to use their equipment etc. The specialist I went to advised after I paid him the $190 for his 10 min consult that an operation was not necessary – in what way was this conflicted…he missed out on much higher fee by not performing a surgery.
As I have said many times prior that there are many great advisers in Australia who operate under a conflicted remuneration model (noting that meeting the definition of INDEPENDENCE is not a guarantee of better advice – it is just a very good start). The industry has in many instances soiled itself in terms of reputation. This is again why it is important not to water down THE LAW to potentially benefit firms commercially, that want to market themselves as INDEPENDENT. Again if you are not owned by a bank or other institution you are able to market yourself as NON_BANK OWNED.
Medical specialists in a way do charge different fees to different people depending on which health fund they have an “alignment” to under agreed rebates
Your model is not the only model. Jonathon is talking about an alternative model to yours which is not too dis similar.
Both are correct in offering a independently aligned service to clients.
If you are so dead set on being truly independent then maybe free advice is the only option!
Not too dissimilar except for the fact that Jonathon’s firm charges % of FUM and receives commissions on insurance?
So Matty, a firm that charges fees based on simply time spent but at exorbitant hourly rates, is so much better? Or what about one that also has extra fees (still quite high as well) because they don’t use a platform or managed fund, but instead do an MDA of their own device, despite the fact that they’re either not really expert fund managers which means higher risks, or else they simply subscribe to an external research firm who tells them what to do… those independent models are so much better for the client/consumer are they?
How about the FPA/ASIC also goes one step further and prescribes exactly what fees you [b]have[/b] to charge as a maximum, and exactly the hourly time frame have to do it within, in order to get your so precious ‘independent’ mantle, would you be quite so happy then if it doesn’t suit your model?
I’m with you Joey Joe. Time based fees don’t make sense to me either.
Fergy Fergy Fergy, again with an utter lack of understanding of COI and what it actually means. Tsk tsk tsk, like talking with a small child with learning difficulties, perhaps we should start using monosyllabic words, or better still perhaps your AFSL or the cult you’re aligned with with all those repetitious vowels (where they making it easy for you dear, you know, so you could better remember it?), could perhaps better educate you, do you think? (Sorry, that comma was transposed for a period or full stop; they were two separate sentences at the end).
That makes complete, no aligned, sense Jonothan. Well said.