There was a lot of chuckling and a little bit of guffawing round these parts when we read that the Independent Association of Financial Advisers (IFAAA) plans to turn itself into a profession next year. Just who does the IFAAA think it is?
Oh that’s right – it’s that powerhouse association of fewer than 30 members that claim to be different from the rest of us because they are “independent”. Are these guys serious?
The idea that 30 people can change the world seems laughable until you stop to think about it. Smaller groups than that have changed the world before.
“Independent” has a very clear, very precise definition under Section 923A of the Corporations Act. It says what advisers must do (and what they must not do) if they want to legally describe themselves as independent.
I’ll save you looking it up. They cannot receive commissions of any sort – not even on risk business – unless those commissions are rebated in full to the client. They cannot charge fees calculated on funds under management or assets under management – or, as the Corporations Act puts it, “forms of remuneration calculated on the basis of the volume of business placed by the person with an issuer of a financial product”. And they cannot receive “other gifts or benefits from an issuer of a financial product which may reasonably be expected to influence the person”.
So there you have it. It’s pretty clear. If an adviser fails on any one of the conditions then they fail the test of being independent, and can’t call themselves independent – it’s illegal if they do. That’s why there are so few of them, because the average financial planning business receives risk commissions or charges fees based on FUM or is in some other way tied to the world of product – and sometimes all three of those things.
Remember the barber surgeons of medieval Europe? Back in the day you could get a haircut and get your war wounds taken care of by the same person. They were the same people because it was the barbers who owned the sharpest blades and presumably gave the best haircuts. But eventually the role of barber and surgeon diverged to such an extent that the surgeons became a recognised and trusted profession while barbers continued perfectly happily as the skilled tradespeople we know and are at the mercy of today.
What we’re seeing with the IFAAA is a bit the same, but on a smaller scale. Why can’t 28 people form the nucleus of a new profession? And look at the advice business CPA Australia has built. Anyone operating under that license would fit the Corporations Act definition of independent, and there’s potentially a few more than 28 of them.
IFAAA’s members can choose to comply with professional standards legislation in the states in which they operate; the government is going to oversee the creation of a code of ethics for all financial planners, so the IFAAA does not have to do the work on that; and they have a very powerful message that they can tell the public and which sets them apart from other financial planners.
A small, semi-fanatical outfit like the IFAAA has the potential to be a far more effective catalyst for the professionalisation of financial planning than any association that sets out to represent financial planners that are merely “independently owned”. And it may even have abetter shot than the associations that are in thrall to a broad church of members – some of whom abandoned any pretence to professionalism long ago.
Non-independent advisers, even independently owned ones, can bitch and moan all they like, but the message to the public from the IFAAA would be clear: we’re independent and they are not, therefore we’re the only true professionals.
Are you ready for that? We’re not, and the smiles have been wiped off our faces. The IFAAA’s move is a challenge, but we can choose to see it as an opportunity as well. We all know what independent advisers look like and what they do, because the law tells us what they look like and what they do. Each individual planner must decide if that’s what they want to do, too.
And if we decide we don’t want to do that, then that’s a legitimate choice, but we can’t complain when a profession of financial planning is ratified in 2017 and we’re not part of it.