THE SOAPBOX exclusive: Only 14 truly independent financial advisers in Australia

And SuperGuide has the list!

It’s taken some time but a handful of motivated licensed financial advisers have finally raised the bar and demanded that… wait for it… licensed advisers provide independent advice in the best interests of clients.

I can hardly believe it myself, but according to Matthew Ross, the co-founder of the newly-formed Independent Financial Advisers Association of Australia (IFAAA), there are only 14 truly independent financial advisers.

I’m hoping in a country of 22 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 publication of the ‘group of 14’ inspires other independent advisers to make themselves known (if they exist), or inspires others to become truly independent.

Change from within will deliver results

In recent months, 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’. Such an approach is destined to countless setbacks (and ultimately failure) because the broader financial planning industry as it is currently structured is a product distribution model rather than a financial advisory model. I personally believe it is impossible to modify a structurally corrupt business model – you have to throw it in the air and create a new model.

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. We need to reward the advisers who are operating in the best interests of clients and if this 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’), then we’re finally heading in the right direction.

What does ‘independent adviser’ mean?

So, what do you need to possess in the way of skills and independence to make this exclusive list?

According to Matthew Ross, who is also an adviser with Roskow Independent Advisory, the list of 14 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 explains that 80% of all authorised representatives are aligned with a product manufacturer, which precludes them from describing themselves as independent. He says: “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 argues 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 says 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,” says Ross.

Ross hopes that the recommendations made by Bernie Ripoll to include the term ‘fiduciary’ in the Corporations Act will effectively result in the end of asset fees charged by planners. I discuss the fiduciary obligations of advisers in my column THE SOAPBOX: The 25-year super war.

IFAAA – point of difference

The IFAAA, currently administered by Daniel Brammall, promotes itself as the ‘gold standard’ of independence of financial advisers. Quoting directly from the IFAAA material:

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.

Membership fees for licensed advisers are $1,100 and for ‘associates’ the fee is $595.

Group of 14 – the list!

According to Matthew Ross, as at 22 December 2009, there are only 14 independent financial advisers in Australia (out of over 16,000). The names of these independent advisers are:

• Phillip Thompson, ACT
• Daniel Brammall, ACT
• Fergus Hardingham, NSW
• Chris Browne, NSW
• Kevin Smith, NSW
• Bill Raffle, NSW
• Carolyn Baker, QLD
• Richard Starr, QLD
• Tony Grlj, QLD
• Neil Salkow, QLD
• Matthew Ross, VIC
• Yoni Stein, VIC
• Adrian McMaster, VIC
• Travis Morien, WA

If you believe that your name should be on the list, why not contact the IFAAA.

I invite the other financial adviser associations to write to me and present their point of view on the issue of independence.

For background information…

If you want more information about the importance of independence when seeking financial advice, check out some of the other relevant articles on our SuperGuide website:

• Independent financial advice: How do you find it?

• THE SOAPBOX: Let’s raise our glasses to Sherry

• THE SOAPBOX EXCLUSIVE INTERVIEW: Cheap financial advice now available – what does it mean for consumers?

• Six dangers when seeking super fund advice

• SMSF providers: What should I look for when setting up my DIY super fund?

• Top ten problems with our super system, and how we can fix them

• Choosing a super fund without an adviser

• Getting real super advice

Related articles:

1. How many financial advisers operate in Australia?
2. THE SOAPBOX: Cooper declares war on retail funds and financial advisers
3. THE SOAPBOX: Let’s raise our glasses to Sherry
4. THE SOAPBOX EXCLUSIVE INTERVIEW: Cheap financial advice now available – what does it mean for consumers?
5. Financial advice: Government bans new adviser commissions from 2012