What really is “INDEPENDENT FINANCIAL ADVICE”?
In December 2017 the Royal Commission of Misconduct into the Banking, Superannuation and Financial Services Industry was established. It was concluded in February 2019.
This changed the spectrum of financial planning advice in Australia.
I will not be talking here about the legal concept of changes introduced, you can find those details on ASIC website or RoyalCommission.gov.au website, but I think the changes introduced need to be fully understood, as at the end of the day, the Royal Commission recommendations were introduced with the sole purpose of improving Financial Services Industry as a whole, introduce further scrutiny and corporate governance as well as improving public security within the financial sector, within an advice as well as implementation and transactions.
I honestly believe this is one of the most important topics and videos for you, as at the end of the day your future depends on who you speak and listen to, who you trust when it comes to the advice, and the companies you decide to deal with.
So today, we will be talking about what the INDEPENDENT ADVICE really means, how you can discover if you are really receiving fully independent advice and plan, is it really worth it and the difference between independent and non-independent service and advice.
So was the Royal Commission a benefit and money well spent? You be the judge; this is the list of some cases against financial institutions:
- Former NAB branch manager pleads guilty to fraud
- NAB dealing with unlicensed home loan introducers
- TAL Life Limited for handling of insurance claim
- AMP to pay $5.175 million penalty for activities of its financial planners
- CBA to pay a penalty of over 5mil in damages for some products sold
- proceedings against Youi Pty Ltd for breaches of conduct
- Superannuation trustees compensate members wrongly classified as ‘smokers’
- civil penalty proceedings against StatePlus Super for charging fees for no service
- CBA liable for overcharged interest
- $35 million remediation for OnePath Life customers
- BT Funds Management and Asgard Capital Management ordered to pay a $3m penalty for charging fees for no service and making misleading statements
- ANZ for failing to provide promised benefits to customers
- Aware Financial Services Australia fined $20 million for charging fees for no service
The list just goes on and on, you can check it all on ASIC’s website.
So as you can see, the Royal Commission made quite a difference and introduced a great deal of added security for consumers when dealing with financial institutions.
I was wondering if you had any such problems with a financial institution, and if so, please share with me.
But at the same time, many changes were introduced in the financial planning sector, and this is another most important piece of information you really need to understand, before you jump into employing anyone to assist you in your financial planning for your future.
And this is where the changes to the “Independent Financial Planning Advice” come to play.
But first, we need to understand what the definition of this INDEPENDENT ADVICE really is:
Independent financial advice can be broadly defined as advice that is impartial, unbiased, without any potential for a conflict of interest and solely with the client’s best interests at heart.
What does it mean in legal terms?
To call yourself an independent financial planner and adviser:
1. CANNOT receive any commissions or any gifts or other benefits for recommending specific products and services issued by a financial product provider,
2. CANNOT receive renumeration based on the volume of business they place with the company, meaning the more business introduced the bigger the renumeration,
3. CANNOT work on behalf of a specific financial organisation, therefore limited to the products of such organisation. Some companies and super funds are trying to be smart and have agreements with a couple of other product providers to show clients a variety of choice, but this is far from providing an independent advice.
So as you can see requirements these days are very strict and very specific.
Well, I am proud to say that my practice About Retirement is fully independent.
1. We operate under our own license.
2. No financial institution has any financial interest in the business.
3. Our advice if commission free
4. Relationship is only between us and a client.
5. A client is the only party that renumerates us for our work.
But how can you know that you are actually speaking with an independent financial planner or adviser?
This is where the Financial Services Guide comes in handy. Read it carefully before your meeting with the financial planner. Our FSG is listed on the website. When you make a booking for a consultation with me, a link to a copy of FSG and other legal disclosure documents will be included in your booking confirmation, so you can read the full legal disclosure before we even meet.
If you open our FSG it reads:
Independent Financial Advice
Advisers of ASIRE Financial Services provide independent financial advice which means we do not receive any commissions, or any other payments from financial product providers. We are solely renumerated on the fees our clients pay for service we provide.
An interesting fact is that less than 2% of Australian advisers and advice firms are independent under the terms of the Act.
But is this what Australians really want?
Profession of Independent Financial Advisers PIFA did a survey of 75,000 Australians.
The findings were:
- 73% said it was ‘very important’ to speak to a financial adviser who is genuinely independent.
- 84% said they would be happier to create a longer-term relationship with a genuinely independent financial adviser.
- And the biggest surprise was that 86% said they preferred a transparent fee paid by them over any type of commissions or other types of difficult to understand renumeration to an adviser.
So what is your opinion about the independent advice? Is this important? Do you believe that advice within the financial sector should be truly independent?
I think it is essential that you understand the choices and only then you will be able to make an informed decision. Not always what is cheap or free is actually good for you, so do your research, full due diligence and when you need a financial advice, only speak to a person that does not represent any other party but you. The advice is focused on your goals and your life, not the company the adviser is working for, or the product that pays commissions or other incentives.
If you need a financial advice, book a meeting with me, on each page of my website there is a button BOOK A MEETING where you can choose the day and time of our consultation. And as mentioned today, please read our FSG to get familiar with the financial planning process and our practice.
By: Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement
