Financial planning stalwart Dominic Alafaci has called for genuinely independent financial planners to be exempted from the “copious disclosures regime” that rightly applies to non-independent planners.
Alafaci, managing director of Collins House Private Wealth and a life member of the Financial Planning Association of Australia, argues that extensive disclosure requirements only make sense where a financial planner has something to disclose.
In a blog posted on his website, Alafaci says financial planning businesses that are defined as “independent” under Section 923A of the Corporations Act have “nothing to disclose”.
Section 923A says in part that a financial planner can only use the term “independent” in relation to their advice if they do not receive:
• Commissions, apart from commissions that are rebated in full to clients;
• Remuneration based on the volume of business placed with an issuer of a financial
• Other “gifts or benefits” from an issuer of a financial product which may reasonably be expected to influence them.
To describe themselves as independent, a financial planner must also operate “free from direct or indirect restrictions relating to the financial products in respect of which they provide financial services”, as well as “without any conflicts of interest that might…arise from their associations or relationships with issuers of financial products [and might reasonably] be expected to influence the [financial planner] in carrying on the business or providing the services”.
Salespeople
“Regardless of the recent positive Future of Financial Advice [FoFA] initiatives, insurance advisers, estate agents, financial planners, accountants, lawyers, and stockbrokers who continue to receive commissions, or are remunerated on turnover, are no more than financial product salespeople, and should not be able to hold themselves out to be anything else,” Alafaci says.
“Similarly, those financial planners who chose to work for an institution that only allows in-house products to be sold – such as industry funds – cannot provide Non Conflicted Advice, and should not be able to hold themselves out as anything other than financial product salespeople, unless the platform becomes exempt from being a financial product under the law, and investment choices are not limited to in-house products.”
The 30-year veteran of the financial planing industry says the decision by members of the FPA that they will no longer receive commissions was an “extraordinarily courageous step, and something that should be applauded”.
“The next step for those who wish to hold themselves out as professional financial advisers is to provide independent advice with no conflicts of interest, and comply with Section 923A of the Corporations Act,” he says.
“It would make sense for independent advisers to be given dispensation from the copious disclosures regime as they have nothing to disclose, which should bring down the cost of providing independent advice and make it more affordable to many more Australians who seek advice that is only in their best interest.”
This article has been edited to clarify the conditions of Section 923A of the Corporations Act that must be satisfied for a financial planner to describe their advice as “independent”.
