ASIC recently fined a financial services licensee in relation to its use of the words ‘independent’ and ‘non-aligned’ on its website. ASIC has subsequently said that while the words ‘independent’, ‘impartial’ and ‘unbiased’ are prohibited, and the word ‘non-aligned’ is misleading, there is a question over the use of ‘independently-owned’ and it is obtaining legal advice on the matter.
Strictly, it seems, Section 923A of the Corporations Act does not classify ‘independently-owned’ as a restricted word. Yet, ASIC is concerned that referring to independence, even perhaps ‘independently-owned’, may give the impression that a financial adviser is free from the influence and bias of a product issuer.
We will need to wait for ASIC’s final position on this.
But beyond the legal and regulatory questions on the use of the word, are the actual practices of advisers and the perceptions of their clients and the public.
Indeed, the more these perceptions change for the better, the more irrelevant the legalities around the word become.
As the financial planning industry matures into the profession it needs to be, the question of independence will be assumed and will not even need to be used as a marketing by-line. Take lawyers as an example. Their advice is assumed to be independent.
Any influence from a third party, or the appearance of such influence, is highly irregular and usually calls into question their ability to carry out their professional function.
Like lawyers, accountants and other professionals, the real question is about acting for your client. When you act for your client, when you take on their matter, there must be a total focus on securing the best possible outcome for that client. All other considerations pale.
This is reflected in the FPA Code of Ethics. Principle 1 of the code states: “Placing the client’s interests first is a hallmark of professionalism, requiring the financial planner to act honestly and not place personal and/or employer gain or advantage before the client’s interests”.
The other seven principles of the code support this fundamental principle.
The financial planning industry is well on its way to becoming a profession as expressed in the FPA Code of Practice. But only when each and every financial planner believes to their core that to act for their client is their duty and their calling, will financial planning be regarded as a true profession.
You, as a member of the profession, will only be truly part of it when you regard your client’s success as your success, when your ethics becomes your point of pride and when you behave in your client’s interest, not your own.
Being a professional transcends questions of independence. Let’s set our ambitions on something greater, a singular focus on our clients’ best interests.
Marty Carne, general counsel, Centrepoint Alliance
Anonymous, Thank you for your reply: you wrote “Consequently the Corps Act definition of “independence” is of no use to the majority of consumers who simply want an easy way to identify advisers who are not owned or controlled by product companies.” Storm was therefore based on your definition INDEPENDENT. Advisers want to be able to use the term INDEPENDENT as consumers see it as a means to accessing advice which is not biased or conflicted. As you correctly stated STORM’s advice was inappropriate…and based on a TURBO CHARGED conflicted remuneration model (hence why FOFA got rid of % based fees on GEARED portfolios). If a client is paying a flat dollar fee from their bank account or their super fund I have no issue with this as it is not conflicted (it is an agreed amount hopefully agreed on annually via a signed LETTER OF ENGAGEMENT ie. annual opt -in). A commission (% based remuneration based on sales volume) however should not meet the INDEPENDENCE definition…as it is considered to be a conflicted remuneration model…which goes against what INDEPENDENCE stands for. One question, why post as Anonymous? if you stand behind your view which you of course have the right to articulate , why not put your name to the post? All the best.
Anonymous, RE: “The Corps Act definition of independence also includes restrictions on adviser payment method, which are actually nothing to do with independence” You are INCORRECT. How an adviser is paid is very much related to INDEPENDENCE. An adviser who receives payment from a 3rd party (ie. insurance company) to provide advice to another party (client) is not independent – they are working for the provider of the payment and not the client. Hence why under the Corps Act to be called INDEPENDENT you are NOT able to receive commissions and other forms of conflicted remuneration. Independence (under the CORPS ACT) is helpful to consumers as it helps them to find Advisers who are not remunerated by conflicted payments. Non-Bank Ownership is not main criteria for being INDEPENDENT…as under your definition STORM FINANCIAL was INDEPENDENT…are you suggesting that this was the case. Strengthening the definition of INDEPENDENCE and not weakening it should be the priority for ASIC and the Financial Services Industry.
So Fergus, what about an adviser who operates purely on a fee for service basis, and collects their fees via a platform such as BT Wrap? Are they deemed to be working for BT? Do they fail the “independence” test on that basis?
I’m not sure how the Storm situation is relevant. The problem with Storm was they gave inappropriate advice. That could have quite easily been done by a firm which met all the ASIC requirements of independence. Whether Storm did meet that definition or not is irrelevant. It was Storm’s flouting of other well established advice regulations, and ASIC’s failure to act in time, that led to the problems for Storm’s clients.
Reading into s923 of the Corporations Act 2001 and the prohibition of the use of those three words independent, unbiased and impartial, it seems that the banks and the big institutions had influenced this piece of legislation to impede external financial advisers, yet they are and were with in-house advisers dependent, biased and partial to their own product flog. External advisers should push to have the law changed as ASIC can only enforce compliance with it.
This “Independence” terminology is a joke.
A quick read of the Intrust Super PDS states a benefit to members is “Independent financial planning advice through Intrust360°” – a wholly owned subsidiary of Intrust Super.
Now Intrust360° themselves however, do not claim to be independent.
What impression do you think the public / members are going to get from reading that PDS?
That a financial adviser is free from the influence and bias of a product issuer.
Agree. The Corps Act definition of “independent” and licensee control of fees is more RED TAPE confusion to the Australian public.
This system is absurd, a bureaucratic mess, Julie you are a lone voice please keep persisting. the Australian community is yearning for good advice and good advisers are choked in red tape drowning and slowly dying. it is devastating and a huge detriment to public interest in the long term… is anyone listening?
The Corps Act definition of independence also includes restrictions on adviser payment method, which are actually nothing to do with independence. This was done in the days before there was a statutory Best Interests Duty. It had some benefits in limiting conflict of interest in a pre BID world, but at the same time created a legalistic definition of independence that was not aligned with what consumers expect it to be. Consequently the Corps Act definition of “independence” is of no use to the majority of consumers who simply want an easy way to identify advisers who are not owned or controlled by product companies.
Now that we have BID, it is time to remove the irrelevant payment method restrictions from the Corps Act definition of independence, so that “independence” has greater meaning and usefulness to consumers.