The Report made a number of recommendations about financial advice that will be well covered by others (for example, new annual renewal requirements for ongoing service fees, bans on grandfathered commissions, a review of other commissions for insurance, new disciplinary approaches for financial advisers, restrictions on the payment of advice fees from MySuper accounts etc).
But there were also some interesting comments and recommendations around “independence”.
Hayne recommended (Recommendation 2.2) that any adviser unable to describe themselves as “independent” should be required to explain “simply and concisely why the adviser is not independent, impartial and unbiased”.
Hayne has not recommended any change to the definition of "independent" in the Corporations Act 2001. This means advisers who receive commissions that are not fully rebated to the client, volume bonuses (or similar) or are (say) licenced or owned by a product issuer are not considered independent.
Advisers are still free to charge asset based fees (often described as commission by another name) and refer to themselves as independent.
What Hayne is doing, however, is elevating the importance of independence (regardless of flaws in the definition) by:
- recognising that simply disclosing potential conflicts and inviting clients to read between the lines is not enough, and
- actually requiring advisers who are not independent to disclose how this is so.
Of course, independence alone does not guarantee good advice. But I do see something positive about an environment that raises the profile of a very obvious source of potential conflicts of interest.
True independence can only happen when the client (not an intermediary on their behalf) is making an informed and conscious decision to pay for advice. They know what they are paying, who they are paying, what they get for it and they choose to pay.
The irony of all of this is the classic “be careful what you wish for”. If removing conflict means the product provider no longer subsidises the cost of advice, it may well be far more expensive than the consumer realises. Truly good financial advice is incredibly valuable. Let’s hope clients work that out.