The British Financial Conduct Authority (FCA) has released a review of “delivering ‘independent’ financial advice” following the term being clarified in law under its FOFA-like Retail Distribution Review (RDR) reforms.
While the RDR outlines that “independent advisers” have objectively to consider all types of retail investment product, and “restricted” advisers are only able to recommend certain providers, the FCA has said many advisers are still using the term incorrectly.
Despite teething problems with the UK model, Boutique Financial Planners president Wayne Roggero told ifa its application in Australia would be a step in the right direction.
“We should consider what the UK are doing and have a real close look at it to see how it works,” Mr Roggero said.
“I think there is nothing wrong with the advice that advisers give that are from a licence where there are restrictions in relation to the product they use, but the client needs to be educated that that is the case.”
Mr Roggero said the problem in Australia is that advisers cannot refer to themselves as independent if they receive a [product] commission.
However, it is allowable for many firms to call themselves an “independently-owned business” when they use a licensee from “the big end of town” rather than holding their own AFSL.
“There are what I would think are a number of ‘independent’ financial advisers out there that can’t call themselves that,” Mr Roggero said.
“So I don’t think the system is working at the moment properly and it’s certainly not fair.”
Mr Roggero also said that following the UK model would mean firms are obliged to disclose any ownership arrangements with the client.
“Some clients are going to want the big end of town; they like the safety and security and there is nothing wrong with that,” Mr Roggero said.
“But other people want to be getting what they see as advice that is independent or away from that type of situation and that’s where it’s unclear for a lot of people.
“It’s about the end-consumer being informed.”
Accepting a commission from an insurance product should not exclude you from being classified as independent. We have our own AFSL, we charge a fee for service, our approved product list is determined by independent external research (getting harder to find) providers as well as our own internal research. We can use any insurance provider available, we dont use managed funds, we operate our own platform, we dont accept or pay referal fees to our approved business partners and we offer extensive estate planning from inception to completion(not just a paragraph in an SOA). Where we accept a commission on the insurance is when the advice is provided to our client’s children and they dont have the means to pay for it and yet because of this, we cannot be designated as independent. The commission doesn’t determine who we use, it just provides an alternate method of payment to the client.
There was a time when you could call yourself independent if you had your own licence and had no institutional or third party ownership.What you see these days is business names being promoted without clear disclosure of who the licensee is, more so since accounting firms are now offering financial planning advice. Now what does happen, if that firm is independently owned as accountants, then that same inference is carried across to the financial planning part even though it may be licenced through an institution.
What needs to happen is clear disclosure of who the AFSL holder is. The standard needs to apply to all forms of promotion and advertising. ASIC have slipped in this area in recent times.Remember the days when your Business name could not be of greater prominance than the AFSL holder? What we need is a rewrite of the rules and enforcement so it is clear who is the AFSL is, whether it is truely independently owned or institutional.
Consumers are very confused about the term independence because unfortunately advisers can get away with the term “independently owned” and mislead the public into thinking they are independent. I have new clients coming to me with complaints that they have seen someone who they thought were independent only to find out that they wanted to sell them a commission based insurance product or something else that was not appropriate.
It’s plainly obvious that retail persons cannot distinguish between “independent” and “independently owned”. To them it is one and the same thing. Those planners and bodies who rely on this trickery do not operate within the spirit of the legislation and should be called out.
lets define Independent
Own AFSL & Not belonging do dealer Group that is owned by a bank/Insurance company or product manufacturer ie no ownership by any one involved with bank, Insurance or product manufacturer