For the majority of the financial services industry the answer is YES!
I read with an interest some time ago a headline saying “independence and profitability are mutually exclusive”. It certainly tweaked my interest, as someone who has taken the deliberate step of establishing a truly independent financial advice business.
Firstly, there is the ongoing debate as to who can call themselves “independent”. From my reading of the Corporations Act (as a layman!), the definition of independence requires a fixed fee pricing structure (and doesn’t allow for an adviser to call themselves independent if they receive commissions (including insurance commissions), and/or charge a client a % of their funds under management or sometimes referred to an asset based fee.
If you look at the industry as a whole (approximately 16,000 advisers), by my calculation, there are less than 100 advisers who could meet this definition of independence.
So why is there such an enormous disparity?
I would say that for the majority of financial advisers, meeting the definition of independence and maintaining a profitable business would be mutually exclusive for the following reasons:
In summary, there are established (and in most cases) thriving advice businesses in Australia – restructuring their existing business to meet the definition of independence would more than likely jeopardise the profitability of these businesses for the reasons noted above. As such I can’t see the small cohort of truly independent financial advisers growing anytime soon.
Ben is a Sydney based financial adviser and a participant in the ADF Financial Advice Referral Program which lists advisers who operate free from remuneration-based conflicts of interest. The content of this article is purely educational and is not to be taken as personal financial advice.
Further details about the ADF Financial Advice Referral Program can be found at http://www.adfconsumer.gov.au/resources/adf-financial-advice-referral-program/