What difference does it make that a financial adviser is independent?

You can be forgiven if you assume that in 2019 all financial advisers are required by law to provide advice that is completely independent and solely in a client’s best interests, but sadly that is not the case.

Financial advisers can still provide advice that can present conflicts of interest. This may be because they receive commissions or fees based on some of the products they sell you, or because they only sell financial products from a limited selection of manufacturers.

Financial advisers that fall in this category are not able to call themselves independent, but they are also not currently required to tell you that they are not independent (although the Royal Commission recommended that they should).

Members of the Profession of Independent Financial Advisers (PIFA) are the gold standard of independence in financial advice, with all members meeting the following criteria:

• No asset-based fees
• No commissions or incentive payments from product manufacturers
• No ownership links or affiliations with product manufacturers

In November 2019, SuperGuide attended the PIFA’s annual symposium in Canberra and interviewed a selection of PIFA members about why it was critical for them to only provide independent financial advice. In the video below they also share how it feels now they are independent, and how it’s changed how they work with clients.

Transcript

What were the main reasons you became an independent financial adviser?

Peter Humble, Rise Wealth

A realisation that the approved product list was being, for want of a better word, rigged. So the deliberate manipulation of products to steer advice in one direction or another to suit the broader objectives of the particular group that I was formerly employed with. And for me that was the day I came home and said, “We need to leave.”

Dennis Maddern, Maddern Financial Advisers

We need to not be conflicted. I mean, I think law, medicine and engineering, accounting, even, all of them are without fear nor favour. They’re there to service the client. And there is no conflicted remuneration structures, there’s no incentives, there’s no trips to the Grand Prix and trips to the tennis and these soft dollar things.

Matthew Ross, Roskow Independent Advisory

I didn’t have the confidence to give advice under the conflicted model, so I was holding back. And then I was working for a firm that was about to promote me to be an adviser, and I realised I couldn’t work there. They didn’t actually let me pass probation. I was thinking too differently.

Michael Radalj, Your Private Advisers

I basically have a high ethical approach to what I do, and I really do want to do the best for clients in any circumstance. And I want to be seen to be doing the best for clients in any circumstances.

Daniel McGregor, Wealth Train

To remove the conflicts between advice and product had been a constant source of frustration for me, waiting for the big businesses within the industry to find that path themselves, and they just seemed incapable of doing it.

Neil Salkow, Roskow Independent Advisory

I’d recognised the way that the industry was, and saw from working with other firms how they did it. And I just felt the conflicts, just didn’t sit well with me in terms of even just the whole business model is around pushing product. And so focused and centred around product. Even when there was strategy talked about, it still ended up delivering product as the solution.

And for me it didn’t make sense, I really wanted a divide between strategy and product. So I came up with doing strategy analysis for clients, pure strategy, no product at all. And obviously when you do that, you have to charge a fee.

Joe Stephan, Stephan Independent Advisory

We’ve always looked at how would we like to be treated if we were clients, if we were consumers. And we’ve always felt that our business was structured in a way which was targeted towards that. And for a long time we were unaware that this was potentially an option. And so as our awareness grew, we felt that we were doing all the things anyway. So the reality was it was a label. In our hearts we were always independent anyway.

Richard Barber, Liquidity Independent Advisers

We went independent just a bit over four years ago, mainly because we wanted to be able to really accommodate our clients’ objective, financially that is. And we found we had restrictions. We wanted to be able to be flexible in how we put things together.

Rick Horvat, Horvat Financial Advisers

We were sick of telling someone else’s story, to be honest. And no one else’s story matched up with our story. So under an MLC license or under another person’s license or under product or whatever it was, it just never felt right.

Deborah Lin, Liquidity Independent Advisers

There was always a better way of doing things. I was frustrated at with what I couldn’t advise on by my licensee. And I wanted to be able to focus on the client and give them the best possible advice without any restrictions.

How does it feel now since becoming independent?

Naomi Horobin, Clover Financial Group

You’re not dictated to about what you can do for a client, in that rather than an employee wanting to or preferring you to use very specific products or product providers, we now can choose what we think will work best for the client. And that’s where we should be.

Deborah Lin, Liquidity Independent Advisers

It’s been great. So that restriction and the control’s been lifted, and it allows me the freedom to give the best advice that I possibly can.

Dennis Maddern, Maddern Financial Advisers

I think it’s a feeling of just cleanliness. It’s just clean. There’s no need to hide anything. You can put your financial services guide out, and it can be scrutineered by the finest Queens Council there is. There is nothing to hide.

Matthew Ross, Roskow Independent Advisory

The short answer is options for clients. So we say it to clients when we first meet with them, that being independent means all the things such as no asset-based fees and no alignment to a product provider.

But the most important thing is being in a position to explain to the clients all the options, not having a vested interest in any particular one. So we’re agnostic about the option. Our job is to talk about the pros and cons and help the client choose the one that’s right for them. And as I’ve said a lot of times in the past, I don’t believe advice can be given any other way.

Amir Salehi, Planning Wealth Independent Advisory

I feel much more confident that I’m doing a better job for my client. And the fact that they feel it too. I can see it. I can sense it. That they feel more confident in me. That yes, it’s our best interest.

Phil Thompson, Rise Financial

The way we can provide advice when you’re an independent, it’s purely liberating, as in it just feels right. You’re there to help people, and you have no barriers, there’s no conflicts of interest that will taint any of the advice. So you can simply look at everything on their merits, you understand where the client’s at, understand where they’re going, help them understand the pieces together.

Joe Stephan, Stephan Independent Advisory

I would say, with all the noise that’s going on in the marketplace at the moment with the Royal Commission and the findings and the FASEA reforms and all of it, the reality of it is that we felt because of our decisions that we’ve made to work in our clients’ best interests, that we haven’t needed to really do too much, all too much in our business, to change things as a result of any of the recommendations.

Mick Steffan, Independent Advisers WA

It is a relief to be independent. What it really means is that one, I can sleep well at home knowing that I do absolutely the right thing without any conflicts whatsoever. And two, the type of clients that come in are much more relaxed. It’s not more about products or strategy, it’s more about this dude has already done the hard yards in order to become independent and has fully committed to that. And so the trust relationships develop much quicker than before when you would be associated, attached to a product or a financial institution.

Daniel McGregor, Wealth Train

Oh, it was a feeling of freedom, because you know that you only then have to focus on what’s best for the client. You’re not being pushed to sell or recommend any particular products. You’re not constrained in the products that you can recommend. So the only thing you’re focusing on is what’s best for the client.

Peter Humble, Rise Wealth

Now, I wish we had done it 10 years ago. I think we tend to put barriers in our way. We tend to tell ourselves that reasons why things won’t work. Yeah, every day this gets easier.

Keith Henderson, Malibu Wealth Advisory

Simplicity, so it just simplifies the conversation. Independence gives you that capacity to get straight to the heart of the matter.

Michael Radalj, Your Private Advisers

So it’s a bit of a no brainer actually. It’s the easiest way to live. It’s a comfortable way. When the clients call or when we call them, it’s an easier conversation, is to tell them what we think about what should be done or whatever it may be, or catch up with where they’re at and what their concerns are, and just to simply address them as best we can.

How does being independent change how you work with clients?

Michael Radalj, Your Private Advisers

You could say broadly on the investing side that clients end up with, I think, the portfolio that we think is the most appropriate, the lowest costing products, as well as some where they make higher returns because we are rebating commissions as well. And it results in better conversations.

Deborah Lin, Liquidity Independent Advisers

They trust me as the adviser, and I think they appreciate the fact that I have become independent. It’s more transparent, easier to understand.

Philip Harvey, Construct Wealth

It makes it a very easy conversation when you’re recommending products because you can, hand on your heart, look at the clients and say, “Yes, I’m going to recommended this is the best product for you. And I can tell you that because, regardless of what I recommend, I’m getting no other money from it.” So there isn’t that conflict. And also just the fact that I’m not aligned to any of the banks or the other large financial institutions is a really big thing to me, especially with all of the stuff that’s come out in the last 18 months or two years.

Keith Henderson, Malibu Wealth Advisory

The advice is much easier, because I simply focus on the challenges, the education, the problems, and the solutions. And there’s no noise. So it’s a much simpler, cleaner way to operate.

You can learn more about the importance of independent financial advice in the SuperGuide article Independent financial advice: Why it’s important and how to find it. In the SuperGuide article What makes a financial adviser independent? the President of PIFA Daniel Brammall describes how to identify an independent financial adviser.

All PIFA members are listed here.

Disclosure: SuperGuide is a Corporate Authorised Representative of Independent Financial Advisers Australia. Daniel Brammall is a Director of both Independent Financial Advisers Australia and the Profession of Independent Financial Advisers (PIFA).