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’.
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.
Perhaps IFAAA should be renamed ACAAA (Anti Commissions Adviser Association of Australia). That is their real point of differentiation, even though it is not necessarily in clients’ best interest.
[quote=Anonymous]Have to agree with Matthew here unfortunately Anon. You think not giving clients the option to pay via commissions is unethical – the truly independent advises believe letting them pay via commissions is unethical.[/quote]
Whoa steady on Anon. Please be careful about speaking on someone else’s behalf. I appreciate the support but just this very morning there was a meeting within the IFAAA community and an important outcome is that we need to be more careful about our language.
I don’t believe that commissions are unethical – I just believe that rebating commissions for my clients make far more sense and I am more comfortable operating in this manner.
If other advisers feel the same way, come join our community, but the feeling/belief/opinion that the IFAAA believes it’s better than everyone else is false. I understand why others have formed this opinion, but it’s something our community is very keen to eliminate from the discussion.
Sounds like rank and file IFAAA members have been making the mistake of telling people what they really believe, rather than following the official IFAAA script.
Haters are always going to hate.
…and the Players gonna play
Brammall is insufferable, maybe if these purists lost the holier-than-thou attitude the association might gain more traction.
Holier-than-thou or just higher standards of what is expected of an adviser?
It’s not about who is better than who, it’s about what standard is high enough for us to be respected by the community. Don’t hate on Daniel just because you have a different opinion…
Moderator, happy for you to adjust this comment to change Posting as from Anonymous to Matthew Ross.
It’s holier than thou precisely because it claims to be a higher standard but it’s not. Complying with s923A actually makes clients worse off in many cases. Unnecessary SMSFs and unavailability of commission payment options for insurance being two examples. The IFAAA is a marketing organisation trying to squeeze maximum bucks out of the deeply flawed definition of “independent” enshrined in s923A.
Unnecessary SMSFs because of complying with s923A – explain that?
Unavailability of commission payment – when we rebate commissions, the client save 25% each and every year. So it’s more affordable, not less. So again, explain that. “Clients won’t pay for advice”…yes they will, when a plan is in place.
Do you also advise your clients not to borrow to buy a home until they have saved up the full purchase price, as this will be more “affordable” than paying all that interest to the banks over the life of the loan? Sometimes it’s in the client’s best interest to choose a payment method which is significantly cheaper in the short term so that they can acquire something at lower cost now when they most need it, and pay it off at a higher rate later when they can better afford it. Life and disability insurances frequently fall into that category.
I’m not licensed via an institution, and would love to promote myself as “independent” because that’s how my clients perceive me. However s923A precludes this because I give my clients the choice of paying for insurance advice via fees or commissions, depending on their preference and what’s in their best interest. I believe it would be unethical to refuse clients this choice so that I could get a marketing benefit. However if I did decide to make this ethical compromise at the expense of my clients, I’d certainly be popping along to the IFAAA “symposium”.
“acquire something at lower cost now when they most need it, and pay it off at a higher rate later when they can better afford it.”
Pay 25-30% more for it longer term is what you mean by higher rate. And you’re pointing the finger at others for ‘marketing’. Please.
Stop making excuses. Tweak the way you do business ever so slightly and independence is yours. If you’ve been to a symposium then judge away, if you haven’t, come and meet the breed of people in the association and then judge. Any further comments on the association without doing your research is irresponsible, unprofessional and unethical.
Have to agree with Matthew here unfortunately Anon. You think not giving clients the option to pay via commissions is unethical – the truly independent advises believe letting them pay via commissions is unethical.
I have my own AFSL, an open APL, advising for 20 years and yet because 5 clients wanted to pay their insurance premiums via commission I cannot call myself independent. One could also argue that turning away clients because they are unable to pay your fees by your preferred payment method and not giving the client payment options… in order to blow one’s own trumpet is a conflict in itself.
Daniel, do you really believe it is appropriate for a financial planner employed solely by an industry super fund product provider to call their advice independent? Or an accountant with little training or knowledge on superannuation or insurance matters, who only recommends one product (ie. SMSFs), which multiplies their fees. How do these examples fit into your ‘three facets of true independence’. Meanwhile, there are thousands of financial planners across the country who aren’t allowed to describe their advice as nonaligned or independently owned, despite broad APLs and a legal obligation to put the client’s interests first. To suggest the status quo should remain is just self-serving nonsense.
I was at the IFA-CON debate and saw Daniel and his colleagues make a very convincing argument for…a statutory Best Interests Duty.
s923A is ultimately a poor man’s BID. Prior to BID, s923A was one of the best legislative tools available to encourage better quality advice. But it has weaknesses. It does nothing to prevent the conflicts associated with fee for service based inhouse products like SMSFs or adviser managed portfolios. In many ways it encourages those conflicts and leads to worse advice solutions. It prevents cash strapped consumers from accessing more affordable insurance advice via the commission system. And its definition of “independent” is too far removed from consumers’ common usage of that term. Many consumers unwittingly end up in the clutches of institutionally owned advisers because most non institutional advisers have no way of promoting themselves as such.
Now that we have BID it’s time to completely revise s923A so that it is meaningful and useful to a majority of consumers.
You’re right. A quick look at any AMP website and there is no means possible to distinguish that they are actually owned by AMP. Usually a very small AMP logo in the footer section.[i] “Consumers unwittingly end up in the clutches of institutionally owned advisers because most non institutional advisers have no way of promoting themselves as such””[/i] An excellent summary of the situation. How do you compete with the marketing budget of AMP.
As the IFAAA only has 33 practicing members, it seems that not many are clambering to get on board that bus !
I suggest the IFAAA symposium would be akin to just having a nice long lunch with some like minded friends who are getting together for mutual support.
The fact that the IFAAA has only 33 members says more about the sorry state of this industry than it does about the IFAAA itself.