A very small group of us believe that financial planning best practice in ensuring a `Client's` interest is put first would entail subscribing to all of the 7 measures below. Before going any further, scroll down and see how well your financial adviser or our competitor stack up.
1. Non-aligned Licensee
Financial advisers must provide advice via an ASIC Licensee. The majority of Licensees are ultimately owned by banks, fund managers and life insurance companies.
Often this fact is disguised by the Licensee in not using the parent company name. Wondering why they are not always transparent?, Read on.
Whilst the advisers working within these Licensees may have some flexibility as to product choice they could feel compelled to use products of the parent company. Like tied/aligned advisory practices (see below), you may wonder who is the adviser really looking after.
... Australian Financial Practitioners' Licensee is
2. Non-aligned Business
Ownership of the financial planning advisory business can affect the services and products provided. For example, an advisory business may be allowed to offer only the parent company's products. Even if they can offer others, advisers may prefer the products of the parent company.
Many advisory businesses are ultimately owned by banks, fund managers and life insurance companies; in other countries they are know as tied/aligned advisory practices.
Being tied to a parent company does not necessarily mean poor advice, but you have to wonder who the adviser is really looking after ...
... Australian Financial Practitioners is
3. Independent Compliance
The Licensee is responsible, amongst other things, for compliance. Surprisingly, under current Australian laws it is possible for an adviser (or his/her business) to also be the Licensee.
This means that it may be possible for her or him to undertake self-audits of their own work and in the worst case, if a compliance issue arises they may not put it right and not report the breach to ASIC; who is going to know?
Whilst ASIC may undertake reviews of Licensee's, in reality it is a big task and therefore would be difficult to catch everyone.
... Compliance audits of Australian Financial Practitioners are
undertaken by independent auditors with the Licensee.
... Australian Financial Practitioners charges a "Fixed Flat Advice Fee" this is independent of products.
4. Independent Remuneration
Whilst the government recently removed commissions for new superannuation / pension accounts, the majority of advisory businesses now charge a percentage based fee on the size of your portfolio for ongoing portfolio advice; they call it a "Fee for service".
For example, a $500,000 superannuation portfolio may be charged a 1% advisory ongoing fee; that is $5,000 per annum.
Whilst the advisers working within these advisory businesses may have some flexibility as to the actual percentage fee, they can feel compelled to sell more of the investment product to earn higher revenue from the client. In other words their income is dependant upon selling products. So when these advisers recommend clients to buy more product, you may wonder who the adviser is really looking after.
5. ASIC REGISTERED
Individual financial advisers can be self directed (called "Authorised Representative"), work under a Corporate Authorised Representative or be an employee of a Licensee. The last two groups represent many advisers and surprisingly, until 2015 they were not necessarily registered with ASIC.
However, an anomaly still exists in that the usage of the description 'financial adviser' and 'financial planner' are not restricted by law, which means untrustworthy people can still portray themselves as financial advisers or financial planners.
... You can trust us ... Advisers with Australian Financial Practitioners have always been ASIC registered.
6. University Educated
Considering how important wealth is to people's lives, it is surprising that many advisers may only hold certificates or diplomas in financial planning / services; i.e. below university bachelor degree level (AQFL7).
An adviser without a university degree does not necessarily mean poor advice, but would you be comfortable taking advice from a doctor or lawyer who hasn't been to university?
... Advisers with Australian Financial Practitioners must hold an university degree in financial planning.
7. Professional Membership
There are numerous developments in superannuation, investments and pensions, and an adviser should keep up to date. This can be achieved by holding practitioner membership status and meeting the continuing education criteria with an independent professional body.
Whilst not being a member of a professional body doesn't necessary mean poor advice, you may wonder how up to date the adviser actually is.
... Advisers with Australian Financial Practitioners must be a member of a professional body.