Lack of transparency 'dupes' clients

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The majority of consumers are still confused about whether financial planners are aligned or independent, recent research shows.

In its latest superannuation and wealth management report, Roy Morgan Research found the majority of customers using Financial Wisdom (CBA) or Godfrey Pembroke (NAB/MLC) perceived the financial planner as independent.

Roy Morgan said not understanding who is independent or not may contribute to a lack of trust towards the profession.

Association of Independently Owned Financial Professionals chief executive Peter Johnston told Wealth Professional the public is confused due to a lack of transparency over independence.

Before 2005, advice firms had to display which bank or super they were aligned to on their letterhead or business cards. For “some unknown reason”, after 2005 ASIC directed advisers no longer had to do this, said Johnston.

“We would like to see that transparency come back, so customers know right from the moment they walk in the company’s door where that adviser is aligned to.

“Instead, these practises are masquerading and appear to be independent but are not. Consumers don’t want to be duped and that’s what’s happening.”

AIOFP have been lobbying Senator Arthur Sinodinos since he got into office to change it to the status quo.

Independent advisers also need to better educate the public as to what independence means, said Johnston.

“We have nothing against people seeing banks. But given a choice, we think consumers would rather see an independent adviser and have a choice of three of four institutions rather than one.”

There is confusion over what ‘independent’ is defined as – which leads to greater misperception in the marketplace, said Johnston.

While ASIC defines an independent adviser as someone who does not receive commission from any product, AIOFP disagrees. “We think the critical factor is who owns the licence,” Johnston said.

Current estimates put 80% of financial advisers as institutionally aligned, so out of around 17,000 Australian advisers, just 3,400 are independent.

It may be the message as to who is really independent will get out to the public as greater numbers of advisers become independent licence holders.

Because with the worst part of the GFC over and a new government at the country’s helm, there is a definite shift towards advisers wanting to become independent, Johnston said.

“With independent advice, consumers get the benefit of getting an unbiased view on where their money should be placed. And for the adviser, there is freedom of choice to offer a product without fear or favour.”

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  • James Smith on 12/12/2013 9:55:08 AM

    Roy Morgan and Peter Johnston should do their own research before shooting from the hip in the public domain as they are creating more confusion by their comments.The Godfrey Pembroke approved list covers a broad range of fund managers and securities that are not owned or related to NAB. It also includes platforms that are not owned by NAB. Therefore it is quite plausible that a Godfrey Pembroke adviser can demonstrate independence in their advice. The fact that the Godfrey Pembroke list also includes MLC product ( which is owned by NAB ) does not infer a lack of independence ( as this article seems to infer ) as the Godfrey Pembroke advisers are under no obligation to use NAB owned products. The comments of Morgan and Johnston reflect the disappointing lack of standards in the debate on such important issues - no wonder customers are confused.

  • Rosemary Johnston (PIAA) on 12/12/2013 10:08:01 AM

    Very interesting, we see the same thing with clients confused about vendor's agents offering impartial services to property investors when their legal responsibility is to work for the vendor. Consequently many investors are buying with poor decision making processes as the vendor's agents are generally not concerned about this part of the process. Add to this that their claims are often exaggerated or inflated, as real estate law permits, and you have the messy end of the property investment market identified. We would love to see some Government initiative for transparency and disclosure to support investors to be able to make better investment decisions.

  • Tim Rogers on 12/12/2013 10:08:05 AM

    Come on Peter, ease up. Independent licence ownership doesn't preclude those same advisers having a bias towards using platforms that they have equity in and therefore receive a financial benefit from by placing clients in it. Its time everyone stopped trying to gain market share by creating fear and confusion amongst the public. Let's all just get on with providing quality advice for a clear fee.

  • James Smith on 12/12/2013 10:24:36 AM

    Agreed Tim. A recent example I came across was an adviser with their own license that had recommended a disproportionately high exposure to a gold bullion fund to a conservative investor needing income in retirement. Turns out that the gold bullion fund had a referral relationship with the adviser.

  • Stewart Hynes on 12/12/2013 10:50:16 AM

    Seriously!!!!!!! I have operated in the advice space since 1995 and over the journey have been a salaried adviser, have been employed as an adviser on a salary and commission model, became a CFP and took equity and ownership of my own practice, eventually buying out my business partner. Not once,ever, has a client questioned whether or not am I an "independent adviser". My clients are not confused or concerned about 'independence'. Fairdinkum let';s just cease the rehetoric and get on with looking after our clients well being, there are enough opportunities for everyone.This is very boring viewing, Peter Johnston should be in politics where nobody would listen to him at all!!!

  • Innocent Observer on 12/12/2013 11:55:45 AM

    Being "independent" does not make the person or practice any better an adviser as someone whose dealer group is institutionally aligned (directly, or indirectly as in the case with Godfrey Pembroke). That's one aspect. Another, and in my opinion a far more important aspect, is that 99% of industry banter seems to be about product. What is the cheapest, who your dealer group is aligned to...etc etc.. By continuing down this rabbit hole we do the profession a disservice. We are reinforcing the misguided public opinion that we are nothing but product salespersons. C'mon guys. We're better than that.

  • Pat on 12/12/2013 1:00:12 PM

    More rubbish from Johnston who can't see that having an ownership in a "vertically integrated investment" platform is as conflicted as being owned by a product distributor.

    Peter, your advisers who participate in the vertically integrated model are going to receive financial benefits from placing their client funds in that platform, right?

    You have a very ill-informed, blinkered idea of what independence is.

  • Michael on 12/12/2013 1:11:54 PM

    It's fine to say that an APL includes a range of options. The test is to review what options are implemented.
    Seen far too many of the non-independent portfolios skewed to the "house" options to accept that a diviersified APL means diversified advice.
    The other problem is that far too many "planners" are merely product salespersons with no personal relationship with clients because that is the way the insto likes it in order to impede loss of business.
    It is amazing how many informed clients are themselves passionately independent. It is largely why SMSF has taken off the way it has and why instos think they get it but will wake up eventually that they did not.

  • James Smith on 12/12/2013 2:55:05 PM

    The great irony with this debate is the demonising of the adviser by the choice of investment they recommend. This all began of course with the industry fund assertion that the industry was structurally corrupt (and now they are employing advisers to promote their own product which was the source of their structurally corrupt claims ! ).Rather than stand up for the quality of the advice profession the industry felt the need to attack eachother based on what investment they recommended or their business structure - neither of which have anything to do with the quality of advice provided. It is also concerning that advisers see the need to promote their own value by denegrating others. Not sure how casting aspersions at others makes your own value proposition any better.

  • Matthew Ross on 12/12/2013 8:23:17 PM

    I can't resist, I have to bite. The first paragraph has an error in it.

    "The majority of consumers are still confused about whether financial planners are aligned or independent, recent research shows...

    Should read:

    "The majority of consumers are still confused about whether financial planners are aligned, INDEPENDENTLY OWNED or independent, recent research shows.

    There are three categories in the market.

    80% aligned
    19% independently owned
    less than 1% truly independent that meet the definition of independence in s923A.

    Stating that there are 3,400 independent financial advisers in Australia just reinforces the misunderstanding.

    Just stating a fact here. Not saying one is better than the other, just stating the fact.

    It's hard to ignore the irony of the article. Peter Johnston is confused due to a lack of transparency over independence; and then he refers to his network of advisers as "independent" instead of "independently-owned".

    Just because you disagree with a section of the Corporations Act Peter doesn't mean you can ignore it or re-define it. I reckon you're acting a bit rogue by representing independence - aren't you just a little bit concerned about what ASIC would say if someone sent a copy of this blog to them?

    Maybe you've been misquoted? Best to give you the benefit of the doubt first...yes?

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