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 http://www.nomorepractice.com.au/.
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.