The recently formed Certified Independent Financial Advisers Association (CIFAA) has requested permission to lodge a late submission to the Quality of Advice Review (QAR).
The CIFA – founded by Perth-based advisers, Christopher Young and Nick Bruining, and Victorian-based Berivan Dubier, who is also a former FPA director – only launched this month but has asked to throw its hat in the ring for the December review.
In its request, the group argued that the cost of advice reduced if legally independent advisers were granted relief from some of the requirements of a statement of advice (SOA).
“The fact is, a great deal of an SOA’s content and an ASFL’s compliance work is related to dealing with the conflicts of interest that exist. From comparing products to detailed disclosures, all of these are effectively redundant when the adviser is explicitly prohibited from having conflicts,” CIFAA president, Christopher Young, said.
“Removing these disclosure requirements would save pages of pointless information being produced, flowing through to significant cost savings for the consumer.
“Like all advisers, CIFAA members are busy but the fact is, members of the general public are definitely seeking out independent advisers. Professional people in particular, learned a lesson form the Royal Commission and if nothing else, discovered how the industry operates, particularly the vertical integration model.”
While QAR submissions officially closed on 3 June, CIFAA said it is concerned legally independent financial advisers are not being represented by organisations.
Mr Young added: “We pretty much came into existence when submissions were closing but if we’re unsuccessful, that won‘t stop us championing the cause. It is an obvious win-win outcome for consumers and advisers alike.”
Speaking to ifa earlier this month, the CIFAA said it plans to apply surplus funds to promote the association in the short term but is open to recruiting an external CEO.
The group’s associate membership, which is entirely run by volunteers, is restricted to retired CIFAA members and students or provisional providers undertaking their professional year.
A number of industry groups and businesses have already released their QAR recommendations to Treasury in recent weeks, including the SIAA, ClearView and the Joint Associations Working Group (JAWG) – made up of 12 key associations including the AFA, FPA, FSC, The Advisers Association and CAANZ.
The QAR, to be conducted by Allens Partner Michelle Levy, will be provided to government by 16 December this year.
I am independent. Well, I don’t meet the ASIC definition of ‘independent’ so I don’t publicly call myself that. But that is what I am. I have been in the profession for 30 years, CFP, never a complaint.
I don’t have an AFSL ‘overlord’ determining APL or strategy. I do have my own AFSL, and I don’t own any product. I do charge fee-for-service (for ADVICE) and have done for literally decades (LONG before it became de rigueur). I have provided FDS’s for 20 years (obviously we didn’t call them that back then, there was no such thing – but that is what they ARE). I invoice clients – RCTI has been our model for at least 20 years, with the exception of insurance commissions. The clients pay for the advice directly out of their bank account (today via EFT, in days gone by via cheque).
I don’t have any loyalty to any product provider. If it is the best thing for the client then that is what I use. If it is no longer the best thing for the client then I change. In fact I have very little to do with fund managers as they have all learned that, no matter how many times they come to visit, it does NOTHING to make me use their product.
But I do get some income from insurance commissions, so I am NOT legally “independent”. And due to buying the odd book, we had some very small clients paying investment or super trail (obviously that has now gone). It wasn’t the right thing to do to charge them via RCTI, so we continued to service them at what is essentially a heavily discounted rate (as the trail commission was way less than a commercially viable fee).
NOW, that has changed. All those smaller clients have been ‘cut-loose’ as we can’t service them for such a small fee (the old trail commission) and they can’t really afford to pay more. So those clients lose out, but it is the way that things must be.
But I am not legally an Independent.
Go figure.
Have you considered ditching the legacy insurance commission and then you’d tick all the boxes? It would probably benefit your business. You may even be able to attract a client or two because you will be able to legally articulate what sets you apart from a non independent adviser. We all know that some of the regs in financial advice are silly, but perhaps it pays to work with what we have.
‘ the group argued that the cost of advice reduced if legally independent advisers were granted relief from some of the requirements of a statement of advice (SOA).’ How will not receiving conflicted remuneration (being independent’ reduce the size of an SoA? What requirements will not need to be included? The problem is advisers don’t understand the concept of an SoA and what it must contain, according the the Law and ASIC – read RG175.
I think what they will be asking is that the rules be changed so that if you are independent you don’t need to do do the same product comparison, etc
Disclaimer, I am an independent adviser.
The reason we find ourselves in the position we are in (ie with sheet loads of red tape that ends up costing the consumer) is because the recommendations to fix the problems (or perceived problems) are made by Treasury and ASCI officials who don’t really know how the industry works; and the incoherent jumble of “advice” these officials are getting from all of the vested interests.
I am not a member of CIFAA, but I applaud them making a submission to try and reduce some of the red tape we are all faced with.
However, I think CIFAA (and PIFA) should be focussing their submission on making sure the term independent fits with what consumers expect it it mean. That is someone who is free of conflicts and can always recommend strategies and products that are in the clients best interest. Too often I see clients that come from other advisers that they thought were independent, only to have me tell them the investment products are actually owned by the previous advisers firm.
IMO the definition of independent should be:
1. They only charge fee for service. No percentage. No commissions. This fee can be taken from the clients investment products, but as a flat fee not as a percentage.
2. They don’t have any ownership link to any products. No grey areas.
3. All fees are negotiated on a 12 month basis.
Advisers that fit this definition should have much more relaxed SOA/disclosure requirements to other advisers. And the advice should be tax deductible.
If this were to go through, I think we would see a raft of advisers that are currently on the cusp of fitting the criteria making the jump. This would be the transformation that the industry needs to separate advice from product.
I agree pretty much with what you have said. But I don’t know that independent from a parent ( what every definition is used ) is guaranteed to provide a better outcome for a client. The most critical part of advice is the quality of the strategy and the appropriateness of that strategy to the client’s goals, risk profile etc.
The product is only a facility to enact the strategy. Don’t get me wrong but being an independent doesn’t automatically make one a better adviser. I’ve known some advisers associated to some form of parent who strategically and tactically would challenge the best so called independent. Likewise I’ve seen independents who were strategically weak but loved spruiking their “supreme knowledge” of everything investment.
The problem in the “non independent’ pool is that the “parent” has been more interested in either building advisers numbers regardless of quality, reluctance of sacking technically sub-standard advisers, reluctance to sack sub standard businesses using their licence and generally being too inwardly focussed.
What I like about all the comments around the place is that the good advisers whether they be “tied’ or “independent’ are starting to get more vocal about not wanting to be associated with the laggards. All licensees and most associations know the advisers who shouldn’t be win the industry. The best thing these people can do is keep the pressure up on encouraging the not so good to leave.
Beyond that this industry has too many associations attempting to influence the advisers lot. Frankly it looks a shambles and in some cases its blatantly obvious that an association is there just to push its own agenda. All we need is small number of smart, strong and respected associations.
Greg, I agree that strategy is more important than products and don’t claim that being independent guarantees a better outcome for the client. However what it does is removes any “encouragement” by the employers for the advisers to sell more of their own products.
JAWG is not a real player at all.
It includes banks and non investment advice/funds management professional associations.
The big insurers have left and we can now see why with the release today of the FSC code of conduct to be imposed on members by 30/6/23.
The exit of grandfathered trails, and all investment related fees being fully disclosed and paid for by the client, means no investment adviser is being paid by a product manufacturer. There is no conflict. S923A is irrelevant.
The only product manufacturer paid payments to an AFSL is related to underwriting capital raisings and facilitating insurance policies. Any fee paid by the insurer to the adviser is clearly disclosed and pretty much the same no matter who the insurer is. So where exactly is the conflict in those payments?
Advisers need to be paid. The client determines what the adviser will be paid by transacting with the adviser, or not.
The definition of “independence” being relied upon is flawed and is not what the general public thinks in the context it is being used. The general public want to talk to am “independent” person in the context that the adviser is sitting on their side of the table and not reliant upon parties across the table for their income.
Meanwhile the banks and their robo advice model promoters within the the FSC/FPA etc are cheering the fragmentation of any dissenting voices in the genuine independent space.
p.s. you cant charge a 30 year old who is paying $90/mth for a death /tpd policy the $1,500 required to cover the cost of advice to facilitate such a policy.
I agree that the definition of independence is flawed, but why can’t you charge a 30 year old $1,500. They happily pay that for the latest iPhone.
What will JAWG make of this late to the party submission?
‘these are effectively redundant when the adviser is explicitly prohibited from having conflicts’.
This is a fundamental misunderstanding of how conflicts work. Conflicts are baked into every client/adviser relationship.
Sure, we can discuss the size and influence of such conflicts ie. insurer A paying 120% commissions vs insurer B paying no commission is a much great conflict than an adviser chasing a higher profit margin with a fee for service client but to think not taking a commission or charging % based fee removes all conflict is intellectually dishonest.
But you have conveniently missed out the bit about advisers that recommend products owned by them or their employer. This is where the real conflict lay, and at this point only independent advisers can claim to have no relationship with the products they recommend.
We have the silly situation where Independently owned practices can pretend they are independent (just because they have their own AFSL), but at the same time they have a financial interest in some of the products they recommend.
IMO, one of the solutions to this is that the term independent should not be just about remuneration, but about links to products that they recommend.
No one said S923a doesn’t need a tidy-up. But in the absence of anything else, it is the only thing that the regulator can use to at least partially differentiate “independence”. The rules are the rules, until they are changed. Let’s not forget that the aim of the regulator is fundamentally to improve outcomes for consumers. That it clashes with some of the business models out there, is unlikley to be a concern.
Nick, I agree, but the Government will only change the rules on S923a if they are shown that it is a good idea for them to do it. You need to remember that the people at Treasury and ASIC, as well as the Ministerial advisers are clueless.
“Let’s not forget that the aim of the regulator is fundamentally to improve outcomes for consumers.”
How is that going so far? Seems to a bit of an affordability issue now – perhaps expanding the role of Intra Fund Advice being provided by product providers is a good solution – no conflicts there?
But it is a concern that S923a clashes with preferred consumption models. Particularly the model of paying for insurance advice via commissions rather than fees, which the vast majority of consumers prefer. As long as the adviser isn’t owned or controlled by the insurer, commissions have nothing to do with independence. Yes, commissions have potential remuneration conflicts that must be managed, but so do all other forms of remuneration including fee for service.
The role of regulators may be to improve outcomes for consumers, but they frequently fail in that role due to bias and incompetence. When regulators have made a fundamental mistake that is counter to consumers’ best interests, as they have with S923a, they should be called out for it. It is unprofessional for CIFAA and PIFA to constantly defend such a bad piece of legislation. It is unethical of you to try and exploit it for your own commercial advantage.
In principle CIFAA has some good points. But the big problem with their proposal is that the legal definition of independent does not align with the real world definition of independent.
The legal definition of independent also prescribes payment methods, which is a separate issue managed elsewhere in the law and CoE, and is a separate issue in the considerations of consumers. This erroneous definition of independent in S923A of the Corps Act is actually one of the biggest impediments to consumers finding real world independent advice.
Unfortunately CIFAA, and PIFA from whom they splintered, are exploiting this erroneous definition for their own commercial benefit. CIFAA’s attempt to influence QOAR is just another angle to their commercial exploitation of bad legislation. If they were as professional as they claim to be, CIFAA and PIFA would actually be lobbying to amend S923A so that it reflects a real world definition of independent.
An update. Treasury has now invited CIFAA to write to the QAR review, which we will be doing. The fact is, our business model is quite different to the majority of firms out there. We are entitled to have an opinion and explain our poistion. CIFAA is not about bashing any other business model and if you choose a particular arrangement and your clients are happy with that, then no problem. We simply think that independence inder S923a legally enforces the no-conflict status and that isn’t a bad thing for consumers. If that in turn can result in reduced paper-work and cost savings for all, how is that a bad thing? This is a positive suggestion, simple as that. Guys, no-one is forced to join anything. Being entirely run by volunteer practitioners, there’s no one indiividual that stands to benefit, we all will. Our motto is; “Run by members for members” – Nick Bruining CIFAA Secretary
What rubbish. We all know the extreme interpretation of independence is a joke. The vast majority of us now operate without links to product manufacturers, and charge a set dollar fees for the vast majority of our clients. Yet we have to tell our entire client base we lack independence because a small fraction of our clients, or those within the licensee, have a commission or asset based fee. It would be easy to just cut these clients off, but some of us have the decency to honour the promises made in the past, and do the right thing.
The best idea would be for the government and ASIC to grow up and allow all advice situations, where there is no ownership links to a product provider and no asset-linked remuneration, to be declared independent advice. All other situations, should simply require a clear disclaimer and sign off by the client in the SOA or ROA so the lack of independence is timely, relevant and accurate. Problem solved. This would encourage more independent advice, and then we can all act together, rather than having these small minded, virtue signalers ranting about how different and special they are, when in fact they are not doing anything special or different from most advisers 95% of the time. It just muddies the waters and confuses the hell out of politicians and bureaucrats who have already shown us they struggle to understand our profession.
Perhaps the legislation is designed to encourage advisers to sever ties with product providers. Makes sense to me. Why exactly do dealergroups exist these days? If you don’t get commissions, and you give unbiased advice wouldn’t you be a lot better off if you left the dealergroup and set up on your own. You’d then satisfy 923A and could get rid of the “not-independant” warning on your FSG.
The run by members for members moto is from the AIOFP and has been for decades?
Well said Lauren
What a mishmash of self interested submissions these will be, this is the most self interested industry I have ever seen. A look into the submissions will reinforce that. Everyone wants to slag others off to get business, feather their own little nest, ask for carve outs here, relief from this and that and the other there. Let me have soa relief as we are perfect, those other non independant planners, well stuff them lets just make them the bad guys to make ourselves look good. Just as you rebate commission and charge direct that does not make you better than anyone else, it just means you cant look after the little guys that need to pay from products as they cant afford it any other way. So you only deal with rich people with good cash flows, well whoopee, so what. Its like a demtel ad, all the steak knifes being thrown into each others backs. No wonder we are a laughing stock in canberra, what a butchers breakfast this is.
We run and independent firm and our focus on providing advice to every day, mum and dad investors. I’m not sure why you think independent firms can only look after high net wealth people?
Which is why they will listen to the FSC, AFA, FPA and Industry Super so that financial planners who deal with “mum and dad” clients will end up worse off. These clients will also end up worse off but despite what is stated the consumer outcome is not important in these reviews.