Paramount Financial's Wayne Leggett

If the government’s plan to make advisers explicitly disclose their lack of independence goes ahead, the combination of managed accounts, insurance commissions and asset-based remuneration will probably mean 99 per cent of advisers have to amend their disclosure documents.

The new legislation, which was introduced earlier this month alongside a Bill proposing annual ongoing fee arrangements, is set to kick in by July 1 if it passes the house and senate. The twin proposal was characterised in this Professional Planner piece as a ‘watershed moment’.

Firms that provide insurance advice via commissions are, according to section 923A of the Corporations Act, not independent. As are providers of managed discretionary accounts, if a fee is attached, and likely anyone that charges their clients on an assets-under-management model.

According to Dan Brammal, the president of the Profession of Independent Financial Advisers (PIFA), there are only a handful of advisers in the country that don’t come under any of these descriptions.

“There’s probably about 250 advisers in the country that meet that standard,” Brammal says.

Brammal – whose group has 60 members and pitches itself as the only conflict free, independent association in the industry – reckons the ‘lack of independence’ disclosure is a long time coming.

“When you have an interest in the product or the transaction then you’ve lost your independence,” he says. “If I’m charging you a fee as a percentage of the assets you protect, then I have an interest in the transaction.”

The assertion, he says, isn’t an attack on advisers.

“You don’t need to be independent for a client to trust you, that’s a furphy,” he says. “It doesn’t mean the adviser is negligent or poor, all it simply means is that it doesn’t entitle the adviser to call themselves impartial, because they’re not.”

The shape of the thing

Just what shape the disclosure will take is unclear, and causing considerable consternation amongst advisers.

Despite the proposed Bill’s implementation date being only four months away, the closest the industry has to a definition of exactly what’s required is the draft legislation’s original demand for written disclosure of an advisers’ lack of independence “in the form prescribed by ASIC”.

ASIC haven’t yet offered any prescriptive guidance, which is understandable given the Bill hasn’t passed yet.

Advisers on the ground are in a bit of a quandary here. “We still don’t know exactly what we’re meant to say,” laments Wayne Leggett, a principal adviser at Paramount Financial in Perth.