Independence all about perception

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Debate is heating up regarding independent advice in Australia and how important (or not) it is. And it seems we're not alone.

David Chaplin, an opinion columnist for New Zealand’s Fairfax media, raised concerns over the alarming lack of fully ‘independent’ advice for our cousins over the ditch.

The Financial Markets Authority has recently published the number of advisers available to New Zealanders for advice on their KiwiSaver superannuation fund. They are broken down into three categories:

  1. Authorised Financial Advisers (AFAs), who have varying degrees of product bias.
  2. Registered Financial Advisers (RFAs), who can give limited, generic advice on KiwiSaver. They are only allowed to help clients with KiwiSaver questions in very restricted circumstances – please take this brochure.
  3. Qualifying Financial Entity (QFE) advisers, who may be authorised by their employing institution to sell you the house product. This can include “anything from travel agents who might dabble in holiday insurance to those Harvey Norman salespeople spruiking interest-free deals to bank advisers who offer the entire in-house product range”, says Chaplin.

Of the 1,902 AFAs, Chaplin estimates that there are about 200-300 who might take a whole-of-market approach to KiwiSaver, but as it is not a very profitable business for them, they are likely to have more important things to do.

Financial adviser coach Tony Vidler works with advisers on both sides of the Tasman and says that the independent space in NZ is as well trained as it is in Australia, but there certainly aren’t many of them.

When asked if independence is really a problem, Vidler says it is all about perception.

“There is always an issue with advisers being aligned to product providers, even if the professional manages the conflicts with full transparency and provides sound and objective advice.  The reason for it always being a problem is because consumers and regulators perceive the conflict to be there implicitly.”

Vidler says that even an adviser who provides objective professional advice with no recommendations can still be perceived as ‘conflicted’. “In my view it is largely a perception issue, but a real issue nevertheless.  If it exists as a fact in the consumer's mind, then it is a problem for the industry at large.”

  • Matthew Ross on 30/05/2013 12:19:21 PM

    Pat, we don't arrange home loans so can't comment on that.

  • Pat on 30/05/2013 12:05:07 PM

    Thanks for the clarification, Matthew. Final question, if you can offer a debt product to a client that has an inbuilt upfront commission of 0.6% that you can't rebate so the client pays less, would you use that debt product (say home loan)?

  • Matthew Ross on 30/05/2013 8:47:27 AM

    If a product pays a commission we rebate it back. As an independent adviser the only person who pays us is our client.

    None of the investment products that we recommend pay commissions, so to say that we will "not recommend a product that doesn't allow us to rebate the commission" isn't technically right (and this is legislation we're talking about). But I think my first comment answers your question.

  • Pat on 29/05/2013 3:45:49 PM

    Matthew, based on s923A, as an independent adviser, you will not recommend a product that doesn't allow you to rebate a commission to result in a lower cost for the product to the client, correct?

  • Matthew Ross on 29/05/2013 2:10:01 PM

    You're right Tony it's a massive problem for the "industry" and a massive opportunity for the "profession".

    Independence is not a matter of perception.

    Section 923A of the Corporations Act defines it.

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