Of the 18,000 licensed financial planners in Australia, 85% are affiliated with large financial institutions such as banks, life insurance companies, fund managers and superannuation providers. Of the remaining 15% most are employed by independently-owned practices, but a tiny number (less than 40) work for independent financial advice firms.

So what does this mean if you need financial advice?

If you are dealing with a financial planner that is linked to a financial institution, you need to be mindful that financial institutions sell their own financial products (e.g. managed funds, superannuation funds, life insurance policies etc).

This means that a planner employed by an institution can typically only recommend products offered by that institution. The institution will generally not allow the planner to recommend products from other providers because they won’t make any money if they do.

This situation creates an enormous conflict of interest for the financial planner. Even if they identify that the best advice is for the client to invest elsewhere, they cannot make this recommendation. Their employer will not allow it.

For as long as financial institutions are allowed to manufacture their own products and operate their own financial planning businesses, a conflict of interest will always exist.

Additionally, the inherent sales culture that has stemmed from the institutions is largely responsible for society’s dim view of the financial planning industry. As a result of the institutions and their dominance, many perceive financial planning to be ‘product-flogging’ with no emphasis on advice.

But not all financial planners should be tarred with the same brush because for the remaining 15% of the industry, financial planning is all about advice. So if you choose to get advice from a financial planner who is aligned to an institution, be mindful that the advice may not be in your best interests because of the conflicts that exist.

Alternatively, you could seek out an independently-owned financial planning firm for your advice needs.

An independently-owned firm will be privately-owned and licensed and not be associated with any financial institutions. In this environment financial planners can operate with far less restriction than those tied to financial institutions. This is a huge advantage for clients because the likelihood of getting financial advice that’s in your best interests is far greater.

However, there are still some issues you should be mindful of. Independently-owned financial planning businesses usually accept commission payments from product providers (generally only from life insurance companies).

This is an issue because all product providers pay different amounts of commission. This means there could be an incentive to recommend one provider over another which also creates a conflict of interest for the planner. Furthermore, incentives from third parties (such as referral incentives and payments) may also be accepted by independently-owned firms.

Regarding fees, independently-owned firms often charge based on the products they recommend and the amount of money their clients have (e.g. a fee that is a fixed percentage of funds under advice). This could mean the fees you are paying are not representative of the advice you actually need. So while an independently-owned firm can be far more attractive than an a firm tied to an institution, remember that some conflicts still exist.

The only way to remove all conflicts of interest is to deal with an independent financial planning firm.

In addition to being privately-owned and licensed and not associated with any institutions, independents do not accept any commission payments from product providers or any incentive payments from third parties. The only payment they receive is a fee from you, the client. This means an independent is properly positioned to act in your best interests.

Additionally, independent planners do not charge fees based on the products they recommend or the amount of money their clients have. Fees are charged based on the amount of advice clients need.

To put it another way, independent financial planners are the only category of financial planner that can provide advice in the same way as your doctor, your lawyer and your accountant; that is, advice that is free of influence for a fixed fee.

This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
© Copyright 2011-2014 Financial Planning Expert Pty Ltd

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Phone: (03) 9708 8126

Email: info@financialplanningexpert.com.au



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    Financial Planning Expert is an independent financial planning business based in Melbourne. We provide genuinely independent and conflict free financial advice. We’re experts in self-managed superannuation fund (SMSFs) advice and strategy, retirement planning, property and share investment advice, life and income protection insurance, tax planning, asset protection, estate planning and advice for Australian expatriates.