- Open invitation to independent advisers
- What does an IFAAA independent adviser look like?
- Change from within will deliver results
- What does ‘independent adviser’ mean?
- IFAAA – point of difference
- Membership of IFAAA
- Group of 30 (10+11+9) – the list!
- IFAAA members – independent advisers
- Independent advisers who satisfy IFAAA membership rules, but are not members of IFAAA
- Independent advisers who are not members of IFAAA, and may charge asset-based fees
Note: This article is updated regularly when new financial advisers join the independence club (latest update February 2014). A financial adviser does not have to be a member of the IFAAA to join the SuperGuide list, provided they can declare that they satisfy the requirements of being an independent adviser (we now have 3 categories). Anyone seeking an independent adviser needs to conduct their own research on whether an adviser is truly independent – this article will help you with this research.
Before you ask the obvious question, let me say, we have asked the same question: How do we know that the 30 advisers in the SuperGuide list are the only independent advisers in Australia?
Well, we don’t! We know anecdotally that there are plenty more independent advisers working away in adviserland. At least we’re hoping that in a country of 23 million people that there are many more independent financial advisers working away for their clients too busy to have time to register for this very exclusive list. Let’s hope SuperGuide’s updated publication of the ‘group of 30’ inspires other independent advisers to make themselves known (if they exist), or inspires others to become truly independent.
Open invitation to independent advisers
Background: Way back in February 2010, we published a list of 14 independent advisers which triggered much controversy and angst from the financial services industry, and from SuperGuide readers. In April 2011, SuperGuide was at it again, and the number of truly independent advisers in Australia had halved – to 7! In February 2012, for the third year in a row, we published an updated list of 9 truly independent advisers.
In June 2012, we again published the updated list of independent advisers but we split the types of independent advisers into 3 categories: more on those categories later in the article. As at February 2014, we now have 30 independent financial advisers on the SuperGuide list.
Since June 2012, we have slightly changed the process involved in compiling the SuperGuide list of independent advisers because we essentially have two definitions of independence:
- The Corporations Act 2001 definition of ‘independence’ which allows advisers to charge asset-based fees
- The IFAAA definition of independence, which excludes those advisers who charge asset-based fees.
We have also published an open invitation to all independent advisers to contact SuperGuide. We will add the names of the independent advisers to the SuperGuide list, subject to the adviser declaring they satisfy each limb of the independence requirements. The adviser will not need to be a member of the IFAAA to join the SuperGuide list (see end of article for link to invitation and for form to sign). The IFAAA has a stricter definition for independence than the independence definition contained in the Corporations Act. We have a second category for those advisers who satisfy the stricter IFAAA definition but choose not to be a member of IFAAA. We have also created a third category for those advisers who satisfy the Corporations Act definition of independence, which means they may also charge asset-based fees.
What does an IFAAA independent adviser look like?
According to Daniel Brammall, President of the Independent Financial Advisers Association of Australia Limited (IFAAA), the IFAAA receives quite a few calls from financial advisers seeking to be members of the association, and Brammall sends out plenty of application forms.
“In spite of all the conversations I have with advisers interested in joining, so far these members [9 advisers in the updated list below] are the only ones who have successfully passed the IFAAA’s Gold Standard of Independence test,” says Brammall.
According to Brammall, the three requirements for the IFAAA’s Gold Standard of Independence are:
- You can’t be affiliated with a bank, insurance or investment company (that is, a product manufacturer).
- You can’t receive commissions of any sort – including insurance commissions – unless you refund them in full to the client.
- You can’t charge asset-based fees (that is, a percentage of client assets under advice or under management).”
Change from within will deliver results
Although the ban on commissions for future retail investment products (including managed investments, superannuation and margin loans) is history making (effective since July 2013), the question of independence (or lack of) remains an issue beyond July 2013.
In the past I have made the comment that I have found the debate surrounding commissions and ownership and independence of financial advice rather depressing because the Government and financial planning industry and commentators were trying to change the industry from the bottom – dragging the worst advisers (in terms of independence) to a level that was a little bit better than ‘worst’. I stated that such an approach was destined to countless setbacks (and ultimately failure) because the broader financial planning industry as it is historically structured is a product distribution model rather than a financial advisory model.
The financial advice reforms announced by former Assistant Treasurer, Mr Shorten were brave and industry-changing, although the changes that were legislated are, perhaps, not as brave as I had hoped. For the past 10 years (at least), I have campaigned for many of the changes legislated, along with other commentators and consumer groups, although some of the positive changes that were successfully blocked by lobby groups had everything to do with protecting the profit centres of major financial organisations and nothing to do with the best interests of consumer.
Even so, real change will only occur when financial advisers drive the change rather than having the Government and regulator drag reluctant advisers kicking and screaming into a new professional business model. Initially, the leaders of the financial advising industry read the signs and were making the right noises (‘higher quality advice’ and ‘more professional industry’), although many backpedalled on significant reforms, in particular, the requirement to ensure a client periodically (every 2 years) agrees to remain a client (the opt-in rule) of the adviser. The original reform announcement referred to an opt-in after every 12 months, and then extended to every 2 years. The final reform version for the opt-in requirement now means that some advisers won’t even have to participate in this compliance requirement, provided they are bound by a code of conduct approved by ASIC. And now we have a new Liberal government that has released draft legislation to remove the opt-in requirement completely, and to dilute the best interest duty.
This irrational opposition from the broader financial services industry is disappointing for consumers and for younger people considering financial advising as a career. In my view, we need to reward the advisers who are operating in the best interests of clients right now – structurally, operationally and ethically.
The relatively new organisation – IFAAA – can differentiate the truly independent licensed advisers from the thousands of advisers who accept commissions and/or are employed or incentivised by the product distributors (read ‘major financial organisations’).
Note that although financial reforms took effect from July 2013, existing commission arrangement and incentive schemes will continue to operate indefinitely, and independence, and conflicted advice, will be a constant struggle for the financial advising industry.
What does ‘independent adviser’ mean?
So, what do you need to possess in the way of skills and independence to make this exclusive list?
I interviewed Matthew Ross at the time we published the original list of 14 independent advisers (in February 2010), and his comments remain relevant. According to Matthew Ross, who is a member of the IFAAA, the list of independent advisers “satisfy the Corporation Act’s definition of independent (see s.923A) which is basically no commissions, no charging fees based on volume of product sold or advised on, and no affiliation with any product manufacturer.”
Ross explained that 80% of all authorised representatives are aligned with a product manufacturer, which precludes them from describing themselves as independent. He said: “Of the remaining 20%, a large slice of them pocket commissions (on insurance and/or investments) or charge their fees as a percentage of your assets, which is commissions by another name.”
Ross argued that the big push by planners to drop commissions but to charge fees as a percentage of assets under management is simply commissions by another name. Ross said that the asset fees are usually collected through a platform, which is not considered a ‘financial product’ under the legislation, and it means the financial adviser can then describe themselves as independent.
“The issue isn’t the word ‘commission’; it’s the concept of an incentive and no matter which way you look at it, when you are paid a % of anything, there is an incentive. Incentives result in zero independence,” said Ross.
Note: Effective since 1 July 2013, every financial adviser is subject to a statutory fiduciary duty to act in the best interests of a retail client. What this means is that a financial adviser is required to place the best interests of a client ahead of their own when providing personal advice to retail clients. The new Liberal government however has introduced draft legislation to dilute this duty when an adviser is providing scaled advice (that is advice, that relates to a specific need of the client, or the adviser has not conducted a complete financial assessment of the client. I discuss the fiduciary obligations of advisers, and the evolution of the super industry, in my 2009 column THE SOAPBOX: The 25-year super war. and background on the reforms surrounding a ‘best interests’ duty in the article Financial advice revamp: by the Shorten curlies.
IFAAA – point of difference
The IFAAA promotes itself as the ‘gold standard’ of independence of financial advisers. Quoting directly from background IFAAA information:
Existing industry associations do not provide genuine independence. They represent the eighty-five per cent of financial planners associated with product manufacturers who receive commissions. According to the ASIC the typical financial planner acts as a “sales force for financial product manufacturers” and that advisers are “a product pipeline”. This is who the current industry associations are representing. Not one of the main four planner associations represents the interests of truly independent advisers whose interests are aligned with their clients.
According to the association’s background material, the IFAAA aims to solve the definition of independence and promote the value of independent advice to the consumers, to train and develop independent financial advisers, and to represent the interests of its members to government.
Membership of IFAAA
For a financial adviser to become a member of the IFAAA they must agree to the following:
- I declare that I am genuinely independent and acknowledge the restrictions of the use of the term ‘independent’ under s 923A Corporations Act (2001).
- I avoid all real and perceived conflicts between my interests and my client’s interests.
- I do not receive commissions for my client purchasing a financial product.
- I do not receive payment or inducements to recommend financial products to clients.
- I do not have in place any fee structure that means I will not be paid unless my client purchases a financial product.
- I declare that I have an interest in promoting and encouraging the professional development, independence and concerns of financial advisors.
- I acknowledge that membership is contingent upon payment of an annual membership fee as determined by the Board from time to time.
Financial advisers are not the only experts who can provide independent advice. Accountants, lawyers and other independent professionals can become ‘associates’ of the IFAAA.
Group of 30 (10+11+9) – the list!
SuperGuide publishes, and intends to regularly update, a list of three categories of independent advisers:
- those advisers (and AFSL holders) who are members of the IFAAA
- those advisers (and AFSL holders) who satisfy the IFAAA independence requirements but are not members of the IFAAA
- those advisers (and AFSL holders) who satisfy the independence requirements under the Corporations Act but may charge asset-based fees, which means they don’t satisfy the additional IFAAA requirement of only charging fees based on hourly rates or retainers.
IFAAA members – independent advisers
According to the IFAAA, as at February 2014, there are 10 independent financial advisers in Australia who are also members of the IFAAA (satisfy the independence requirements under section 923A of the Corporations Act 2001, plus only charge hourly rates or retainers for services). The names of these independent advisers are:
- Trent Alexander, Financial Planning Expert, VIC
- Daniel Brammall, Brocktons Independent Advisory, ACT
- Fergus Hardingham, FM Financial Solutions, NSW
- Susannah Kulincevic, Brocktons Independent Advisory, ACT
- Travis Morien, Australian Independent Financial Advisers, WA
- Michael Radalj, Your Private Advisers, NSW
- Bill Raffle, Bennelong Private Wealth, NSW
- Matthew Ross, Roskow Independent Advisory, VIC
- Neil Salkow, Roskow Independent Advisory, QLD
- Ben Smythe, Smythe Financial Management, NSW
Independent advisers who satisfy IFAAA membership rules, but are not members of IFAAA
As at June 2013, we have 11 advisers who have requested to be on our list of independent advisers, and who satisfy IFAAA member rules, but who are not members of the IFAAA (second category of independent adviser).
The advisers listed below have declared that they satisfy the three limbs of independence required under the section 923A of the Corporations Act 2001, and only charge hourly rates or retainers of services:
- Christopher Dorian Browne, F.D.Browne & Co Pty Ltd, NSW
- Adriano Donato, Roskow Independent Advisory, VIC
- Corin Jacka, Corin Jacka Financial Solutions, VIC
- Glenn Hilber, Precision Wealth Management, QLD
- Mathew Horvat, Horvat Financial Advisors, VIC
- Rick Horvat, Horvat Financial Advisors, VIC
- Rudolf Horvat, Horvat Financial Advisors, VIC
- Jason McGregor, Roskow Independent Advisory, VIC
- Kevin Smith, The Professional Super Advisers, NSW
- John Wothersoon, Astute Investing, SA
- Simon Wotherspoon, Astute Investing, SA
Independent advisers who are not members of IFAAA, and may charge asset-based fees
As at February 2014, we have 9 advisers (7 from the one firm) who have requested to be on our list of independent advisers, and who are not members of the IFAAA, and who fall into the third category of independent adviser, that is, they charge asset-based fees.
The advisers listed below have declared that they satisfy the three limbs of independence required under the section 923A of the Corporations Act 2001 (refer earlier in the article):
- Simon Briggs, Pitcher Partners Investment Services, VIC
- Sue Dahn, Pitcher Partners Investment Services, VIC
- Marcus Damen, Pitcher Partners Investment Services, VIC
- Kellie Davidson, Pitcher Partners Investment Services, VIC
- Brendan Fahy, Pitcher Partners Investment Services, VIC
- David Gemmell, 50Plus Wealth, VIC
- Victoria Lindores, Pitcher Partners Investment Services, VIC
- Adam Stanley, Pitcher Partners Investment Services, VIC
- Jack Tidswell, Exceptional Financial Planning, NSW
If you believe that your name should be on one of the lists above, then why not contact SuperGuide? A starting point is to check out our open invitation, Still wanted: all independent advisers in Australia.
Again, I invite the other financial adviser associations to write to me and present their point of view on the issue of independence.