Should conflicted financial advisers be called agents?

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If you operate under an institutionally owned dealer group, should you be allowed to call yourself a financial adviser rather than a mere agent? Read on for Paragem managing director Ian Knox’s arguments on the subject.

In recent years, the acquisition of financial planning practices primarily by the four retail banks and AMP has led to an imbalance in the ownership of advice and reduced the number of advisers being able to call themselves ‘independent’.

The ASIC definition of independent is course materially unworkable and eliminates 99% of the advice industry – which is a farce when it comes to consumers simply wanting a heading that says what it is, ie: not aligned or owned by a product manufacturer and not conflicted.

The advice industry is now 90% institutionalised at licensing level, and if a practice operates under one of the institutionally-owned dealer groups, they become an authorised representative of that licensee. This is not a new issue although it does raise questions as to whether consumers are aware of who owns who, whether in fact they care, and whether there’s a greater need for transparency in what it actually means to their financial affairs. It’s worth noting the lack of ownership transparency is masked behind a multitude of sub-brands that are presumably designed to hide the ultimate owner.

With little interest from the ACCC, (predatory pricing tactics) banks now appear to be offering advice practices very significant sign-on fees and it’s worth asking whether this changes the game and whether full disclosure of the sign-on fee should mean that the adviser has an obligation to:

(a) disclose this fact; and
(b) move into a category that is correctly and legally defined as an agent.

If a licensee gives an adviser up to $1m to join their dealer group, common sense suggests that they’re going to want their $1m back in some way, shape or form and that there are financial obligations to be repaid through product sales. Perhaps a radical move would be to accept that this is going on and simply reclassify the market into ‘independents’ and agents and then allow the market to determine whether it really matters?

I suspect the transparency would make many of the slippery deals stutter as the word agent (while truthful) is an unfashionable image of the life industry circa 1980 … which is exactly the point – the industry is now replicating the turf war of AMP and National Mutual of that era under the more fashionable heading of ‘wealth management’.

This takes us to who actually takes a leadership stance in the advice industry when it’s dominated by product owners. We should all wake up to the fact that the government and regulator had to step in and introduce reform of the industry (FoFA) because the industry heads weren’t capable of leading the industry properly – not day-to-day advisers but industry heavyweights on multimillion dollar salaries who were on duty when the reforms were called for.

Now we enter the next phase and the same wealth management leaders (sic) offer money to advisers to sell product and pretend that it’s all fully transparent and that it’s good for advice good for the industry and good for consumers. Maybe it’s time for the ACCC and ASIC to start thinking more deeply about creating a consumer-led recovery by levelling the playing field and bringing back the word independent … it’s actually a pretty good value proposition if it’s allowed to be used.

Reproduced courtesy of No More Practice, the education and reality TV franchise created for the business and financial sector. For more information on the series and the inaugural live event, visit

Do you agree with Knox’s sentiments? How would his recommendations on the use of the word ‘independent’, ‘adviser’ and ‘agent’ affect your business? Join the debate by filling in the comment box below.

  • Alleycat on 7/08/2012 12:44:38 PM

    Dear Peter O,
    You've totally missed Ian Knox's point.
    First off, almost 99.0% of clients never read an FSG unless they suffer from insomnia nor do they read much of the content in a SOA because most want to see whether the strategy/recommendations will do what you the adviser say they will do and what are the costs for advice. If you are owned by a large Fund Manager/Life insurance Company or Bank, it's more than likely that 50.0% of your APL, the basis of your recommendations is owned and produced by your owner. So your point has no validity.
    I can think of no more conflicted structure than what you think is acceptable.
    Is the quality of advice/recommendations better or worse than from an aligned adviser verses a non aligned one, is debatable.
    What is apparent though is that the majority of your recommendations are based on what your aligned parent decides you can use.
    Most aligned advisers wouldn't know if there are better products available because it's not their decision to make, it's the Fund Manager/Insurance Coy/Bank that owns your licence who makes that decision.
    That was the point Ian Knox was making.
    As a CFP with many years experience, I see it every day of the week.

  • Chester on 7/08/2012 9:01:31 AM

    Agent is a person who exists by the adage
    " this is the best I have", advisers exist on
    "the best there is "
    I started as an agent 30 years ago,doing the best I had, but soon after realised that wasn't good enough for me or my conscience. The public cant tell the difference between good and bad advice and rely on advice, they need to be able to make informed choices . Agent for those who have only one institution in their range, adviser for those who have greater diversity and therefore greater capacity to advise .

    The best "I have" as opposed to the best there is

  • Chester on 7/08/2012 8:45:19 AM

    The issue remains that if a client goes and sees an institutional adviser , and the client will receive only products from the employers stable then the term agent is appropriate as the adviser is representing the employer

    The old phrase , "it is the best I have rather than the best there is." I started as an agent 30 years ago , doing the "best I have but moved to the best there is " If you can only access one instsitutions products or services then you are an agent of that institution.
    It has nothing to do with quality of advice, it has to do with capacity,
    It has to be said that with reduced capacity,comes a question over is it in the clients best interest

  • David on 6/08/2012 6:08:48 PM

    Although I am an non aligned adviser and happy to remain this way I agree with Steve, in that please don't assume adviser’s can't provide professional advice because they happen to be aligned to a major.

    My bigger concern sits more with any adviser who only gets paid by moving product no matter how they disguise their remuneration.

    Advisers give advice, that’s why we should be paid.

    Naturally it would make my day if the product providers couldn’t play in the same paddock as me, but they can, so let’s judge their adviser work force on merit not simply by company logo.

  • Adrian on 6/08/2012 2:56:08 PM

    This focus on "institutionally owned" licensees misses the point. There are plenty of non-institutionally owned licensees that are still owned by companies that develop their own products. These dealer groups (i.e. Lonsdale, My Adviser, etc) are no more independent than a dealer group owned by a bank.

    True independence comes only from a self-licensed Adviser. Those Advisers probably make up 0.001% of the industry, and ASIC is largely to blame for this.

  • Steve Varhegyi on 6/08/2012 1:50:43 PM

    When you say that a sign on fee would be re-couped through product sales, that needn't be through sales (or advice fees) related to the sales of exclusively the parent institution's products. I belong to a licensee owned by a major bank, however we are able to use a wide variety of platforms and investments in our recommendations. How should we then portray ourselves to our clients, if not as advisers? As agents for XYZ Bank, BQZ Bank, ABC Funds management Group, JKL Trustee company, as well as half a dozen life companies? I think it depends on what restrictions are in place so far as approved products are concerned, not ultimate ownership. Some licensees are operated as separate business units of a parent rather than a sales force for the parent institution's products. In practice you would find that if such demands or restrictions were placed on authorised reps who value a measure of flexibility and autonomy, there may be a mass exodus to other licensees regardless of any incentives. Many of the institutions are quite cognisant of this fact and allow a high degree of product flexibility in many cases comparable to those available to non-aligned advisers.

  • Anthony Stedman on 6/08/2012 1:49:59 PM

    I absolutely agree with the sentiment that Advisors who work for institutionally owned Dealer Groups should be identified as such in some special way. Whilst its fair to say that a client walking into a bank seeking advice would be expect to be sold that Banks product, the same is not necessarily the case when a client engages a planner.

    The dislcosure of a sign on bonus should be mandatory as should an agreement between the client and the advisor that states that the client is aware of the association and is willing to continue on this basis.

    Whilst this conversation is great in the media, the FPA should be following this up as a matter of course as well.

    I would have thought that this type of sign on bonus must be disclosed under the current disclosure requirements.

  • Rob Pyne on 6/08/2012 11:38:29 AM

    The difference that Ian seems to be describing is the adviser who works under a manufacturer-owned license v's an adviser who is self-licensed. This is a distinction that is perhaps more easily established than altering the definition of “independent” or bringing back the use of “agent” which I expect would face withering opposition from the entrenched power-players (i.e. the banks and AMP).

  • Peter O'Toole on 6/08/2012 11:00:24 AM

    Whilst payments to ensure sales, if that is what is happening, would be a conflict, the introduction of the best interest obligation coupled with the current requirement to disclose ownership association in FSG & SoA seem to make Ian's proposals redundant if his objective is to ensure the quality of advice rather than capture some form of adviser perceived marketing advantage. The concentration on the issue of ownership associations seems to imply that advice will always be better from those licensees & advisers that are not associated with large financial institutions compared to advice provided by those who are so associated. I am not aware that there is any evidence that the mere fact of what is being called independence ensures better advice to clients. It seems to me that neither sector is immune from providing bad advice. A focus on the client & professional standards are the only things that will increase the incidence of clients receiving good rather than bad advice.

  • Andrew Jenkins on 6/08/2012 10:57:29 AM

    If you want to get advice from a non-aligned adviser you at least want to be able to recognise them. You should have to qualify and earn the right to promote yourself as such. A consumer led approach is the way to go in my opinion. You need some incentive to entice advisers to act independently from the product providers - clearly segregating aligned from non-aligned (or indept) is a smart for everyone (except of course the product manufacturers). Do we really want to end up with an "advice" industry that is dominated by the manufacturers of financial products?

  • Steve Putt on 6/08/2012 10:55:44 AM

    I would like to think that in time the use of the words financial planner or financial adviser would indicate professionalism.
    I think the premise that institutionally aligned advisers are not professional, and that having your own licence automatically means you are, is laughable. Can you remind me who the institutional licencee of Storm was? How about Morrison Carr?
    We are audited pretty carefully. The opportunity to do things underhanded is pretty small. If I wanted to, I could probably find a way, but it would be a lot easier, if I had my own licence. I appreciate having a licencee sitting above me and ensuring my compliance is up to date for two reasons. One, I can feel confident that I am doing ok, and two, I don't miss things, when issues change. I am kept up to date, beacuase it is in the licencees interest that I don't do the wrong thing.
    As far as product is concerned, I use what is in the best interests of the client. When it is not on the APL, I get dispensation. That is likely to be significantly more flexible that an 'inhouse' bank planner. Even still, I wouldn't be prepared to say that a bank planner was unprofessional simply because they were employed by a bank.
    I feel regularly disappointed by the conduct of some in the industry, but there is no evidence that 'bank' planners or 'institutionally aligned' planners are failng to live up to the high standards of those bastions of professionalism the 'independents'.

  • Steve Baker on 6/08/2012 10:34:31 AM

    I think its a great idea - but then, being an authorised rep of an independently owned licensee, it is natural that I would. With 90% of the industry (and presumably 90% of the FPA) being institutional "advisers" ,the only way that such a move would happen is for it to be legislated. Under the current government, with the huge influence of the unions with their super funds, it will never happen. Would it be possible under a coalition government? With the huge influence of the institutions - probably not!

  • Alex on 6/08/2012 10:29:19 AM

    couldnt agree more, the term independent should be able to be used by advisor's who are not owned or aligned by institutionally aligned dealer groups. I do not agree however calling all those aligned with the institutions agents as their are some very good advisors who probably act independantly of them. I think anyone not owned or aligned should be able to use the term independant, those aligned just financial advisors and those owned by the institutions as agents. I think for the public that would be a good outcome.

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