There are three facets of true independence in the context of professional financial services.
In June this year, ASIC put its foot down.
Anyone describing his or her services using the term ‘independent’ must comply with ‘the independence law’ in the Corporations Act, otherwise known as s923A, or suffer swift legal action. Actually, ASIC took it a step further by stating that terms like ‘independently owned’ or even ‘non-aligned’ would earn the same treatment.
You can well imagine the sort of emotion this generated in those ASIC is talking to with their announcement.
And so a fortnight ago, ifa hosted a debate at IFA-CON on the subject: “Should the definition of independence be changed?” Some 400-odd delegates registered to watch the showdown.
What do you think? Should it be changed?
Trouble is, the answer to that question assumes it’s clear and agreed what being independent as a professional really means, and how this shows up in the context of financial services.
Independence in a professional context – whether that be medicine, law or engineering – means independence of the individual, the one who owns the expertise. That is, you must be free to practice your expertise within the bounds of the law without influence.
Your thinking must be free from influence and it must be your own. Your motivations to provide advice and what’s contained in that advice must be free from influence and must be your own. Your client’s needs must be assessed free from influence and your opinions must be your own.
In short, you own your advice, completely untainted by influence.
How does professional independence play out in the realm of financial services? In three ways.
The first and foremost is remuneration.
Obviously, if an adviser has some sort of incentive behind their advice then they lose their impartiality. And impartiality isn’t discretionary. A conflict exists or it doesn’t. Whether you choose to act on it or not is irrelevant. You either are impartial or you aren’t.
In financial services, this shows up as product commissions or incentivised fee structures.
The second impediment to independence is blinkering the advice.
Ever heard the saying that if all you have is a hammer then everything looks like a nail? In financial services, this shows up as restrictive APLs. Hearteningly, ASIC has said that unlimited APLs aren’t required to satisfy 923A, it just has to be sufficiently flexible to easily add new products.
The third and last impediment is influential associations with product issuers.
At one end of the spectrum this shows up as vertical integration and institutional alignment. At the other end of the spectrum this shows up as culture, something often not immediately apparent to the client. You can see the shadow of culture, though: in the APL, in the annual conferences, in the office politics, in the weekly team meetings, in the pattern of adviser behaviour.
Section 923A actually deals with each of these impediments simply and directly: it says ‘no’.
It doesn’t mean you can’t practise as a financial planner. It means you can’t use words like ‘independent’ to describe yourself.
Because you’re not.
The question “should the definition of independence be changed?” really means “should we make it easier to call ourselves independent?”.
Should we lower the bar?
The answer is “only if it is in the public’s interest”. But seldom is that question asked in the public’s interest, it’s most often asked as an act of self-interest.
However, it’s the wrong question to be asking in the first place. A better question is, “what do I need to do, personally and professionally, to own that term?”
If you want to differentiate yourselves from the banks you don’t need to lobby politicians to convince them that the word independence means something other than what it really means. You need to take ownership of that term and everything it means.
By doing this you are free of the regulator, you are free from the competition and you regain control over your career as a professional.
Now is the time to do that. It’s your time to be asking a better question, and in so doing experience the freedom of taking back control over your career and your business.
Join us at the IFAAA Symposium on 1 December at Old Parliament House in Canberra to learn how.
Daniel Brammall is president of the Independent Financial Advisers Association of Australia.
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