Rule #1: Only trust Independent Advice
The financial planning profession is riddled with conflicts of interest. Demand conflict-free advice.
It makes sense that investors seeking the best advice are attracted to financial planners who describe their services as independent, impartial, or objective.
However it’s no longer legal for planners to use these terms unless they comply with a handful of very strict laws … laws written to ensure genuinely objective advice, rather than a means of making money.
So how does Joe Bloggs, of Bloggins & Co Planners, who wants to attract the most discerning, wealthiest clients — how does Joe get around these laws? He describes himself as ‘independently owned’. Same thing, isn’t it? After all … Joe doesn’t receive commissions, he charges clients a fee for his advice, calculated on how much he invests for them.
Actually, no. Genuine independence is not simply ‘not owned by one of the majors’. It’s about being free of conflict or bias. Why else would the law restrict the use of the term?
Research by www.independent-advice.com.au uncovered fewer than 10 advisers in a sea of over 16,000 financial planners, who appeared to properly satisfy the legal definition of “independence”. That means you’d have to visit 1,600 financial planners to find just one conflict-free adviser.
So what are the attributes to look for in a genuinely independent adviser? There are three …
If the advice is being delivered by someone who is employed by a product manufacturer (or is related to them in some way) then their advice can be conflicted. That means …
No ownership links with any product manufacturer.
Are there any payments being made to the planner by a product manufacturer? In fact, more broadly, does the planner receive any payment that doesn’t come direct from his client? If so, and it isn’t rebated in full direct to the client, then the advice can be conflicted. That means …
No payments to the advisor from any third parties.
- Asset-based fees
Simply commissions by another name, this fee method was an innovation that went something like this: “We have to drop commissions because they’re a dirty word now. Okay, let’s ‘waive’ the commission and invent a new fee which is calculated precisely the same way.”
A common asset-based fee is 1% (usually on a scale which reduces with the more money you give them). Where on earth did this arbitrary 1% come from?
If I give a planner $200k to invest, he’s earning twice the fee than if I were to give him just $100k. But am I receiving twice the value for his services? Is he doing twice the work? Or has he simply found a cute way to double his fee?
Asset-based fees aren’t charged by fiduciary professionals. They’re charged by businessmen who trade on volume. That means …
No skimming the cream off your cake.
Don’t settle for ‘independent’ … go for ‘conflict-free’
When we’re talking about your life savings then you need advice that isn’t conflicted. We at Australian Independent Financial Advisers believe the only advice safe to rely on must be utterly devoid of any conflicts — potential or actual.
Only when the interests of your adviser are 100% aligned with yours are you going to be getting the best result. If your adviser’s interests are at all in conflict with yours then you’re getting a product pitch masquerading as advice.