Industry leaders: the move to independence is critical

Simon Hoyle


July 12, 2017

The founding managing director of dealer groups Associated Planners, Genesys Wealth Advisers and Fortnum Financial Advisers, Ray Miles, says the biggest single decision all financial planners and advice businesses will need to make in the next three to five years is how to transition to providing independent, non-conflicted advice.

Miles says planners should aim to operate in the “green zone – an independent safe zone”, where advice is free from all conflicts with product manufacturers or other service providers.

He says part of the transition for some advisers will be obtaining their own Australian Financial Services licence (AFSL). For others, it will mean seeking out truly independent licensees – as defined by Section 923A of the Corporations Act. For still other advisers, the transition might mean banding together in ownership of an AFSL or join an existing adviser-owned dealer group.

“I am not saying everyone should get their own AFSL,” Miles says. “That’s not the right answer for everyone. But the right answer is to get out of the institution and stop being conflicted. That’s the right answer.”

Geoff Rimmer, a former chief executive of the ANZ-owned Financial Services Partners and executive general manager of trustee and wealth services for Equity Trustees, has joined Miles in encouraging advisers to strive for independence and freedom from conflicts.

‘Homogenous’ advice

Rimmer says the advice institutionally owned businesses offer “has become homogenous” and is invariably product focused or subsidised. Independent, non-conflicted advice treats the process as “a new project each time”.

“Every client is unique, every client is different,” he says. “The world is changing. We have a view of what it’s going to look like. If we are wrong, and you do all the things we are suggesting, you’re still going to have a better business. If we’re right, and you don’t move your business, your advice model and your service offering in the right direction, then you’ll be toast.”

The Corporations Act explicitly outlaws the use of the terms “independent”, “unbiased” and “impartial” by advisers who do not meet the conditions of s923A. This issue has come to the fore in the last fortnight, after the Australian Securities and Investments Commission (ASIC) clarified that advisers and firms also cannot use terms such as “independently owned” unless they comply with s923A.

The section states that financial planners can describe themselves as independent only if they do not receive commissions, volume-based payments or other gifts or benefits, and have no conflicts of interest or influence from any product issuer.

Advisers’ fear of the unknown

Rimmer says independent, conflict-free advice is not only possible and profitable, but is clearly also in the best interests of clients. He says one of the greatest impediments to moving to this model is the unfounded fear of the unknown.

He explains that it is a mistake to believe the process is complicated and costly, and says it’s also not true that an advice practice cannot thrive without the support of an institutionally owned licensee or without being propped up by product subsidisation.

“If I am a consumer, what I want to know is that my adviser isn’t getting anything from anyone,” except the clients themselves, Rimmer says. “Long-term, what does this look like? What should your business look like?

“What you need to do is get out of the institutionally conflicted advice environment and get to where you can give conflict-free advice. While some firms are already there, for most it is a journey that will take a few years. The key is to start that journey now! This is a wave both inside and outside the industry that is gathering significant momentum.”

Hundreds of financial planners left institutionally owned advice networks in the 12 months to the end of May this year, according to data sourced from the ASIC financial advisers register.

The data, processed for Professional Planner by Adviser Ratings, shows that AMP alone lost more than 300 advisers across its AMP Financial Planning, Charter Financial Planning, Hillross Financial Services, ipac Securities and SMSF Advice licensees.

National Australia Bank lost 139 advisers across its six licensees, while ANZ Bank and Westpac lost 66 and 22 advisers, respectively.

These losses were offset by modest gains for the IOOF group, which added 82 advisers, and Commonwealth Bank, which increased its adviser numbers by 102.

On Friday, ASIC announced that National Australia Bank had agreed to address faulty disclosure to more than 150,000 clients of its financial planning licensees who were not adequately informed in Statements of Advice about the relationships between their advisers and the institution that both owned the licensee and manufactured the products the advisers recommended.

TOPICS:   asic,  Australian Financial Services Licence,  Corporations Act,  Geoff Rimmer,  independence,  IOOF,  National Australia Bank,  Ray Miles,  s923a,  Section 923A

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