What are the benchmarks for quality, independent and professional financial advice? More importantly, how do you know they are being met? This guide may help.
Overview:
Imagine consulting a doctor about a critical health issue, only to discover later that they were inadequately trained, were absent from any professional register and essentially were acting as a sales agent for a pharmaceutical company.
Few people would take that sort of risk with their health, but many Australians do something equivalent with their wealth. Believing they are seeking financial advice they effectively end up being served by salespeople or relationship agents.
The consequences of representing a product sale as advice we are all sadly familiar with and it is not our intention here to rake over those coals. But it is worth defining what constitutes independent, professional advice and the benefits it can bring.
Of course, many Australians may find general and non-specific financial advice is enough. But those with more complex needs and wealth require comprehensive and holistic advice from practitioners who operate at the highest professional levels.
With that in mind, those seeking to find a firm that meets those standards may want to consider the following technical industry benchmarks:
Advice Benchmarks:
- Check ASIC’s Financial Advisers Register. This is a public record of advisers who provide personal advice on complex financial products to consumers. You can verify not only whether the adviser is authorised and registered to provide financial advice but what they can advise on. Most advisers who offer wholesale-only advice (people generally restricted to calling themselves ‘investment advisers’) are neither on the register nor properly qualified.
- Suffice to say if they are not registered, they are unlikely to uphold the Code of Ethics now governing the profession. These standards, which have applied since 2019, set high expectations for trustworthiness, competence, honesty, fairness and diligence. The potential consequences of not meeting these tests can include people being placed into investments unsuitable for their needs, risk appetites, age or circumstances. Retail clients can end up being treated as wholesale clients, who are assumed to be more financially sophisticated. Likewise, wholesale clients can be saddled with strategies inappropriate for their more complex requirements and existing assets.
- Of course, the high bar set by true professionalism in financial advice extends beyond a code of ethics to meeting recently codified tertiary education requirements at graduate and post-graduate level. These are set out in detail on the Australian Treasury website. As with other professional occupations like medicine or law, financial advice requires highly specific skills and technical knowledge – most of which can’t be learned on the job. Financial planners must understand the legislative framework as it pertains to tax, superannuation, entity structures and other elements. Advisers also need a technical grounding in how financial markets work, what drives returns in the long run, and the key elements of modern portfolio theory.
- But education should not stop there. Given ever-increasing complexity in tax, superannuation, government legislation and financial markets, an advice firm that helps its clients make smart decisions with their money will set a priority on ongoing education for its staff. This is a crucial factor because a good advice firm will not only be able to meet your needs as they stand today but must continue to be able to meet them as your wealth and the complexity of your requirements grow.
- Independence is another watchword. When you visit a Toyota franchise, you expect to be sold a Toyota. But ‘advice’ based around recommending the financial products of a particular company is not advice at all. Fortunately, consumers now have a legislated test of independence. Section 923A of the Corporations Act bars advice firms using the terms ‘independent’, ‘impartial’ and ‘unbiased’ if they receive commissions, volume-based payments, or operate with any conflicts of interest.
- In Australia today, these skills and attributes are not evident among everyone who calls themself an adviser. For example, stockbrokers (now mostly called ‘investment advisers’) rarely have had this level of training, and for the most part are focused on selling stocks, telling stories and peddling in-house products for their employers. They don’t look at your full picture or provide careful advice and analysis designed to put you in a better position. Generally, their remuneration is solely connected to your investment portfolio and the level of assets you have. This makes them less interested in other things that are important to you – like your cashflows, intended legacy, your children or when you may wish to retire. Offering independent, dispassionate advice and seeing the whole person are simply not part of their business model.
- This means an individual or organisation seeking quality, trusted advice should seek out a firm that is wholly fee-for-service with no conflicted remuneration. Additionally, all business-to-business relationships with suppliers and product providers should be managed at arm’s length on a strictly commercial basis.
- Finally, look at the ownership structure of the business. Some firms proclaim to be client-centric and independent, but an indirect and distant owner may impose aggressive sales quotas or procedures that put at risk the quality of advice delivered to the client. At the very least, they may have little feeling for the nature of the clientele and the value generated by strong, ongoing relationships that can develop into lifelong partnerships.
Non-Tangible Benchmarks
Once you have confirmed that the adviser is on the register, is committed to the code of ethics, is appropriately qualified, and is genuinely independent, there are other less tangible qualities you need to be mindful of before making your decision:
- To be effective, an adviser must be a good communicator who can explain complex issues in a way that is relevant to you. They should also be an educator, providing the necessary information, evidence, intelligence and judgement so you can make good decisions. Their job is to tell you what you need to hear, not just what you want to hear. Empathy is also essential. If an adviser cannot show genuine interest and care for you, it is unlikely you will pay much attention to what they say.
- Look for an adviser who works with clients like you – people in similar situations, facing similar dilemmas. If you are a business owner, for example, you may want an adviser who is accustomed to dealing with the issues and challenges that preoccupy business owners.
- Be wary of advisers who tell you they just want you to ‘trust them’. Genuine professionals want you to understand all the elements of their advice. Complex or opaque investment products and strategies should be a red flag. If you don’t understand what is being recommended, be wary. Ask questions, and if still not satisfied, look for advice elsewhere.
- The core components of a successful investment strategy are the same, regardless of much you have to invest. Be wary of advisers who insist that just because you have a lot of money, you need more exotic investments. Some of the best performing investments of the last decade have been the most widely accessible. The adjectives ‘exclusive’ or ‘exotic’ don’t necessarily mean better. Usually, those descriptors are a signal that they are more expensive, riskier, less liquid and deliver worse returns.
- Finally, look for someone you feel you can build a long-term, trusted relationship with. That person needs to be accountable and must genuinely care for you and your best interests. The stronger the relationship, the more likely you are to gain value from the advice. This person may be the only person in your life that intimately understands your big picture – your goals, aspirations, intended legacy and all the components of your wealth. Just as a trusted GP is critical to your health, a strong trusted adviser (someone you can talk with openly about sensitive issues) is important to your wealth.
Summary
These benchmarks for quality, professional and independent advice – tangible and non-tangible – are tough hurdles to clear, and rightly so. Helping Australians at individual and organisational level to grow and preserve their wealth, build tax-effective structures that take account of their specific needs, deliver clarity and confidence about their financial lives, and manage wealth across generations requires a level of trust, expertise and professionalism that few can meet.
Minchin Moore meets these benchmarks at every level. We are a registered, fully licensed, truly independent, professional financial advice firm. All our lead advisers are degree and post-graduate qualified. We uphold and are strongly committed to the advisers’ Code of Ethics. We are wholly fee-for-service and owner-operated. Our 17 partners work full-time in the business, and we encourage staff to aspire for partnership by walking the talk.
The result for our clients is a feeling of clarity and confidence. They sense at every stage of the process of working with us that we are invested in them. And that is because the values of trust, transparency and truth animate everything we do.
At the end of the day, there is no secret sauce in the service we provide. Helping people make smart decisions with their money is relatively simple. But that doesn’t make it easy. We strongly believe in empowering and educating our clients in growing their wealth, protecting it, and putting it to work so they are confident about their finances, which in turn can enrich every other aspect of their lives. That is why even the most sophisticated investor can benefit from our approach.
This is the advice benchmark Minchin Moore sets and it’s the one we’re committed to meeting now and into the future.
