INDEPENDENCE IS THE TICKET TO THE DANCE
Last month Australia’s largest accounting group, the Certified Practicing Accountants (“CPA”) launched a financial planning solution for its members – CPA Australia Advice Pty Ltd. It will essentially offer a licencing solution for its members who want to offer financial planning services to their clients.
Interestingly the structure of the offering will meet the definition of Independence as defined in the Corporations Act. In the words of the CPA’s CEO, “No commissions, no hidden incentives, no asset based fees – just pure and transparent fee-for-service.” With over 80,000 members in Australia, this could well be a “game-changer” in the financial advice industry.
With growing numbers of financial advisers operating in the “independent” space, and now with the reach of the CPAs, it would seem logical that independent financial advice may well become a lot more accessible and prevalent for a lot more Australians. A good thing!
I personally think, though, that independence is really just the “ticket to the dance”. It’s what you do at the dance that matters most . There are obviously great financial advisers who provide great value to their clients and aren’t independent given the structures they operate under, so people shouldn’t be complacent to think that independence alone is the silver bullet when it comes to great financial advice.
The best example I can give to demonstrate the importance of “what happens at the dance” is the value proposition both emphasised and delivered by the financial adviser. In the world of financial advice, I believe there are 2 key areas of expertise: advice and service delivery.
Looking at service delivery first, as an independent financial adviser, and really any adviser for that matter, you should only recommend a course of action that you genuinely believe is in the best interests of your client.
While all truly independent financial advisers should have access to the universe of financial products, the reality is that they will recommend a selected range of superannuation, insurance products, etc. It is obviously not realistic for any adviser to have 50 different superannuation funds for 50 different clients, and an independent financial adviser is no different. Given independent financial advisers don’t have to deal with conflicted remuneration, and have no indirect or direct relationships with product manufacturers, the reality is that the financial adviser is making a call at that time as to which product in their opinion is best suited to you.
The delivery of advice is very different, and where the “rubber hits the road”. In other words, it allows clients to differentiate the value a financial adviser, both independent and aligned, can add for them. This is where advisers who simply offer a “cookie-cutter” approach to advice are exposed. The following “advice” which is delivered by an adviser to all their clients is really product delivery dressed up as advice:
- the key to wealth creation is to purchase an investment property
- you will only be able to retire comfortably with a self-managed superannuation fund
- you will only get ahead if you borrow money to purchase shares
- you need life insurance no matter how old you are
As you can probably guess these examples are not something that I have necessarily made up. If you read through enough websites, and attend enough adviser “roadshows”, you can spot the wolf in sheep’s clothing a mile off. The key in each of these examples, is the advice is not customised to the client’s circumstances. Advice is all about being personal, and taking the time to step in to the shoes of your client to understand what’s important to them so you can give them advice which you believe will help them meet their important outcomes. It should have nothing to do with financial products.
I am very excited by the CPA’s move as I hope it increases access to truly independent financial advice for more Australians. However, no matter what the numbers, independence is not the be all and end all, and you really need to look beyond the tagline to understand whether a financial adviser can really make a difference to your personal circumstances.
Smythe Financial Management
This article was orignally published on the Smythe Financial Management blog. Click here to view the article.
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