Ethical vs. Independent Financial Advice
Are you noticing more and more discussion about being an 'independent' adviser? Specifically, the Section 923a of Corporation Law definition of independent?
Hats off to those advisers committed to the s923a road - it certainly is one far less travelled. The pursuit of s923a accreditation is not easy in today's marketplace where the foundations of the majority of participants are still firmly cemented in financial product models and mindsets.
I must admit though, I am questioning some of the motives of the 'independent' advisory movement. In particular, I'm unsure about the hype that being 'independent' is the most essential ingredient for our emerging financial advice profession.
Does an adviser have to be independent before being considered as a professional adviser?
Does an adviser have to be independent before being considered an ethical adviser?
For instance, can a financial product expert (e.g. SMSF specialist) working within a bank-owned advice model offer ethical advice?
Assume a product expert's salary is fixed, with no connection to any financial product provided. Also assume her advice is priced in clear dollars, not percentages, and is payable regardless if the client proceeds with the SMSF or not. (Yes, I am aware the bank advisory models are not exactly as per all my assumptions - not yet). Further, assume her advice is in the client's best interests.
Whilst this product expert can't satisfy s923a, can her advice be considered ethical?
Take another example - what about the common situation when advising a 'demanding' client?
Assume the client insists on an advice approach that doesn't align with the adviser's definition of being in the client's 'best interests' - for instance, the accumulator who does not believe in insurance, or the retiree who insists that 100% of their savings are allocated into, say, geared investments into the Gold Coast high-rise property market.
Regardless whether the adviser is s923a aligned, or employed within a bank, and despite the client's willingness to sign any limited advice agreement, is it ethical to be remunerated for the advice the client wants versus the advice an adviser believes is required to satisfy their best interests?
What about the example of a non-engaged advisory client?
This is the client who never makes contact, is too busy or disinterested to meet every year, only wants to be notified when absolutely needed, but who continues to pay every year without opportunity to effectively review the serving of their 'best interests'. Is it ethical to be remunerated on-going for the disengaged client?
When narrowly viewed through s923a, ethics and independence are similar but can be very different principals. That's my problem with s923a.
For many of us, and more importantly for our clients, our alliances, our teams and all our stakeholders, terminology such as ethics, independence and professionalism should be synonymous.
By just limiting independent advice to s923a, there is potential collateral damage to the term 'independent financial advice'.
I admire the steps taken by professionals toward s923a. But unless those steps lead to a consistent, methodical and specific delivery of ethical advice, then I reckon Australians will be less served and continue to be confused by the offerings from the advice industry.
Fundamentally we have to develop the advice industry into a profession. Our focus has to narrow on making financial advice valuable and ethical for all Australians who deserve more than they have received from the industry to date.
I predict a future where more advisory firms label their advice delivered in the best interest of clients as ethical advice. More courageously though, are the firms labelling any advice they are being asked to consider that they fundamentally believe not in their client's best interests as unethical advice.
Ethical advisers realise that the success of their financial advice and thus their firm is never in their hands - it's in the lives of their clients.
What do you reckon?