When considering the services of a financial planner, a lot of people like to put ‘independence’ near the top of the ‘what they need to have’ list. And rightly so, as common sense would suggest that developing a personal financial strategy is far more ‘client-centric’ without the shackles of a large institution.

You only need to revisit some of the recent industry revelations to see how customers have had to put up with incompetent, self-serving drivel that was passed off as quality advice.

Unfortunately, if it is ‘independent’ financial advice you are looking for you will be hard-pressed to find it. To make sure customers aren’t hoodwinked, ASIC actually restricts the word ‘independent’ by financial advisers unless they can meet certain criteria.

They must hold their own license, have no connections to any institution and do not take commissions or payments when recommending products. This guarantees the phrase ‘independent advice’ is what it say’s it is and protected by law.

I can assure you there are very few financial planners who fit the legally defined description. In fact, fulfilling all the requirements to stay independent certainly adds extra costs into a planning practice. Making it a very big commitment, to travel down this route. Most certainly a genuine independent adviser’s fees will reflect the extra compliance requirements.

So what about all the other financial planners giving advice? Well, they are certainly not independent, that’s for sure. And, what’s more, they certainly can’t portray themselves this way?

The advice industry can actually be divided into two main groups.

Self-employed financial planners

There are planners who offer advice under an ‘umbrella’ license from a large institution. Having an Australian Financial Services Licence licensed is expensive and has some pretty onerous compliance. To avoid this, planners wishing to be ‘self-employed’ can use the administrative services of a large institution. In return, yes you guessed it, the planner recommends the institutions products.

In Australia, our big four banks actually have many brand names spread among them. With each separate brand contracting their own planners, who are then tied to recommending their product. This multi-brand strategy gives the impression that the Australian financial planning industry is highly competitive, whereas, in fact, it is the complete opposite!

Although in some instances, a self-employed planner can draw from a wider range of products and providers. But they need to be authorised for each product requiring time and effort. Because of this, many planners just don’t bother.

Although a major advantage of dealing with a self-employed planner is they can be more flexible in their approach as they own the business. This means they don’t need to strictly stick to corporate pricing and service policy.

Bank employed financial planners

The next is by far the biggest group of advisers. Planners who are salaried and employed in one of the big four banks directly. Often referred to as a distribution channel, these ‘guys’ are totally restricted in what they can offer clients.

This shouldn’t appear strange though as they are like any other branded product outlet. Try asking for KFC at McDonald’s. So don’t be surprised because you can’t get CBA products at an ANZ branch.

The bank planners are all about numbers. Big numbers at that. They have targets for attracting funds and revenue. As a result, they are more enthusiastic to deal with clients who have large amounts of money. Achieving targets means bonuses and small investment clients just don’t contribute the re- quired amounts quick enough.

All the big four banks own funds management arms. This makes it incredibly lucrative to funnel client funds through their financial planners. A client who has no funds and asks for advice usually gets a pretty quick exit from a financial planner’s office.

FOFA (Future of Financial Advice)

The government has recently enacted new laws in regards the advice industry. This has certainly seen a change from the actions of the past. These days you pay for advice and therefore independence is not as important as it once was.

Financial planners now have a legal obligation to always give advice that is in the ‘best interests of their client’ and not themselves. This is a very important piece of legislation and guarantees good outcomes for every client.

So if you want advice from someone who can claim to be independent, you will need to search care- fully. These days though it’s probably not the most important factor. The changes made to the industry make it much safer for clients to venture into the ‘lion’s den’ so to speak.

So if you are about to seek some financial advice, shop around with the various types of planners, you’re now on a level playing field rather than the 45-degree angle it once was.

If you are about to look for a financial planner click here to learn how to find a good one. It will certainly help you get hold of someone you can trust.

I am always interested in different opinions so leave a comment below. Thanks for dropping by, and see you next time. Homepage

Postscript; The current Royal Commission has shone quite the light onto the industry of recent, and deservedly so. It’s more important than ever for individuals to have their own basic knowledge of the investment world to ensure the “wool isn’t pulled over your eye’s”