What does it take for a financial planner to be truly independent? Daniel Brammall says the time is right for more to find out. Simon Hoyle reports.
Independence is a funny concept. It means different things to different people. For some, it’s a state of mind. For others, it’s a state of being. For Daniel Brammall, it’s a simple legal definition.
The Corporations Act is clear on what the term “independent” means. Section 923A covers it in detail. If a financial planner receives commissions (that are not rebated in full), any payment “calculated on the basis of the volume of business placed by the person with an issuer of a financial product” or “other gifts or benefits” from a financial product issuer “which may reasonably be expected to influence the person”, then they fail the test.
It’s that simple. And that complicated. By far the majority of financial planning firms simply fail the test of independence.
Brammall says it’s a bigger issue for consumers than most financial planners realise or acknowledge. It means that under the legal definition, the number of financial planning firms to which an individual may go to obtain truly – and legally – independent advice could be barely more than a dozen.
A couple of years ago, Brammall concluded that there were too few truly independent financial planning firms, and those that did exist were not being adequately represented by existing industry bodies. So he set up the Independent Financial Advisers Association of Australia (IFAAA).
‘Asset fees was a particular bugbear for me, because I was there when they were born’
“In 2009 I was glaringly aware of the empty space – that the clients’ interests I didn’t think were being represented; the lobby groups were representing the interests of their members; and it was flying in the face of what I felt the client needed: conflict-free advice,” Brammall says.
“It was in a café down here in Canberra one weekend that the idea came up. Myself and a friend of mine, who is on the board of the IFAAA now – he’s a lawyer – and my partner Susannah [Kulincevic]. We thought, there’s nothing else for it, we’re going to have to push this along. If we leave it to the big lobby groups – the banks, the insurers, the FPAs of the world – we’re not going to see any change.
“So let’s start up an association of like-minded spirits – there weren’t many of them – and be the founding members. We incorporated a public company, not for profit, and established the board and the articles of association, and the rules of membership were really simple: no ownership links to a product manufacturer; no commissions, unless you rebate them in full; and no asset-based fees.
“And the membership has not grown significantly. I’ve had a lot of applications sent out, and a lot of these firms are quite large accounting firms…but they’ve got trails in their history, which they do not want to give up.”
Brammall says the ground is much more fertile now for independent financial planning firms to flourish, and for the IFAAA to gain some traction.
“Now that we have FoFA, it will grow. It will grow quickly,” he says.
“The large organisations, like FPA and AFA and the others, are going to haemorrhage members like crazy.
“Once they realise how simple it is to become an independent – it’s not easy, but it is simple – and the wings you get once you become an indy really give you a great deal of height.”
The aim of the IFAAA is to “educate the public about what independence really is”, Brammall says.
“We want to promote the concept of independence to the public and we want it to encourage financial advisers to become independent,” he says.
“We seek to promote and define independence.
“Conflict-free financial advice for all Australians. That sums it up, pretty much.”
Brammall says: “The IFAAA came about as a result of a path I had been on for some time.
“In about 2007 I came to the realisation – I had my own licence at that stage, Brammall Financial, which was a business I started in 1989 – that things hadn’t changed very much. The FPA was really out there representing the interests of its members.
“I was going through a period in my career when I wanted to become a genuine independent. Having owned my own licence, I was familiar with the compliance rules, and Section 923A, in particular, of the Corporations Act was very, very clear on what it takes to be an independent.
“It’s no conflicts – it’s as simple as that. And the entire industry was trying to find ways to get around doing that. That’s the way they were operating. So I looked around and I poked around and found the association that was the Association of Independently Owned Financial Planners (AIOFP). They tried to get their name changed to the Independent Financial Advisers Association, but ASIC put an injunction on it because they didn’t satisfy 923A. These guys were independently owned, but they were still charging asset fees and receiving commissions.”
Brammall says he decided that the changes being proposed in inquiries such as the Ripoll Review were being resisted by the industry’s largest lobby groups.
“With that in mind, I made the decision that the FPA no longer represents my interests,” he says.
