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Home / Retirement planning / Seeking financial advice / Independent financial advice: Why it’s important and how to find it

Independent financial advice: Why it’s important and how to find it

Barbara DruryBarbara Drury

Independent financial advice has been topical in recent years thanks to the Financial Services Royal Commission into misconduct in the banking, superannuation and financial services industry.

The key word here is ‘independent’. So, what does it mean in the context of financial advice?

Definition: Independent financial advice can be broadly defined as advice that is impartial, unbiased, without any potential for a conflict of interest and solely with the client’s best interests at heart.

You would hope that every financial adviser can claim all those things, but few can because there is a very technical definition behind what makes financial advice truly independent.

Examples of financial advice that is not independent include advice provided by advisers who:

  • Receive a commission (or any other gift or benefit) for recommending specific products and services issued by a financial provider
  • Receive remuneration based on the volume of business they place with the issuer of a financial product or service
  • Work on behalf of a specific financial organisation and are therefore limited to recommending that organisation’s products or services.

Why is independent financial advice important?

About the author

Barbara Drury
Barbara Drury
Barbara is a financial journalist and author with over 30 years’ experience in Australia and the UK. She is a contributor to The Sydney Morning Herald and The Age Money section, and has worked for the Australian Financial Review and The Australian. Barbara is the author of Alan Kohler’s Eureka Report Guide to Personal Investing, Sorting Out Your Finances for Dummies and Personal Finance for Dummies and co-author of Investing for Dummies with James Kirby.
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Response

  1. Christoph Schnelle Avatar
    Christoph Schnelle

    Dear Barbara,
    This is a great article showing the importance of independent advice. The tricky bit is that Australia has the world’s tightest definition of ‘independent’. This seems to have happened due to lobbying by the banks in the past in order to minimise the number of advisers who are allowed to call themselves independent and therefore provide competition.

    Not being with a product provider and not receiving gifts and benefits are clearly essential for independence. However, only the wealthy would be prepared to pay $3,000 to $5,000 to an adviser for a life insurance or income protection insurance *application* – just the application. Most other people would only pay a few hundred dollars or nothing for an insurance application. Hence the only way to serve about 95% of customers is through commissions and all insurance companies are forced by law to pay the same the way almost all advisers are paid – there is therefore no financial incentive to favour any insurance company. To my knowledge no other country forces insurance agents who take commissions but are otherwise independent to call themselves ‘not independent’.

    I have a PhD, and a Masters in Medical Statistics. I am also a survey specialist. I have asked PISA multiple times to do a survey of their members to see how they manage to be insurance advisers and what demographics they serve for insurance. It would benefit PISA as they can show how well their members are doing.

    Warm Regards,

    Dr Christoph Schnelle

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