Solutions Not Sales
The financial advice industry has grown from a largely sales based foundation with most advisers either employed directly or acting as agents of financial product providers, be they insurance companies, investment managers or banks. In this environment advisers interests were directly aligned with the product provider, not their clients’, and we’ve all heard the disaster stories this arrangement can result in.
No Conflicts of Interest & Greater Choice
While there has been a shift to greater independence over time, with advisers owning their own practices (no longer agents) and a rise in the number of independently owned Australian Financial Services Licence (AFSL) holders, the vast majority of advisers are still not genuinely independent.
The majority of advisers are still either directly employed by a financial product provider or are operating under an AFSL operated by a financial product provider. Approved product lists are structured with heavy biases toward the product providers own products and administrative systems are also aligned with the “in-house” products. Advisers options are limited, conflicts arise and bias creeps in. These conflicts and biases also often result in additional costs being incurred by clients.
A further substantial portion of advisers operate under independently owned AFSL’s, however many of these licence holders have sought to tap the financial rewards from being a product provider and have either created their own products to sell to clients or “white labelled/badged” someone elses products, as to receive a commission/payment for using them with their clients. So while the adviser can own their own practice and operate under an “independently” owned AFSL the advice can be as conflicted and biased as an employee or agent of a product provider. The measure of an advisers independence comes down to how they get paid.
Transparent Fees & Lower Costs
For an adviser’s remuneration to be independent it cannot be based on a percentage of insurance premiums or investments/assets and it cannot be from anyone other than the client. A percentage formula leads to a conflict of interest and compromises the independence of advice. It doesn't matter what label is put on it, if it is a percentage it is effectively a commission. The advice fee must be a fixed dollar or an hourly rate fee. Further, as soon as someone other than the client is paying the adviser the adviser is no longer truly aligned with the client.
Genuine independence can only arise where the adviser has no financial connection to any strategy or product they recommend to clients. All three aspects of independence (i.e. Ownership, Licence & Remuneration) must be in place for your adviser to be truly independent. This is how Think Independent is structured.