What is independent financial planning?

The term “independent” when it comes to financial advice can be a confusing one for the average person. For starters the people that make the rules about how financial planners work prohibit the use of the term. But when someone decides to see a financial adviser, it’s safe to assume it’s because they want to seek the advice of a professional – someone with the knowledge and ability to be able to offer them financial advice without biases and conflicts of interest. A financial planner who gives advice and recommendations on the basis that it’s what they believe is in their clients’ best interest, not because they work for a particular institution and have an incentive to sell them a particular product.

When you consider the whole point of seeking financial advice is to have a financial planning professional to help guide you in making decisions about your financial future, we believe that when a person makes a decision to seek the services of a financial planner, really they should be looking for an “independent” financial planner to ensure that they find someone who can do all the things that they want. Unfortunately, finding a truly independent financial planner in Australia can be challenging.

What we believe is truly independent financial advice

In our opinion to truly be in a position to call yourself an independent financial adviser, firstly you can’t be linked to any financial institution. Considering that the vast majority (upwards of 90%) of all financial planners in Australia work for banks or large dealer groups, already you can see why so few financial advisers can call themselves independent.

And what about the way a financial planner is paid? Ever heard the saying “never bite the hand that feeds you”? This is true when it comes to the source of your income as a financial planner. The overwhelming majority of financial advisers in Australia are paid by financial institutions and financial product providers when they sell a product to their clients. This is known as a commission. We feel that when a financial planner is paid commissions for recommending a particular product, this opens the door to conflicts of interest. The financial planner works more for the institution that pays him or her as opposed to working for the client and providing the best possible financial advice. This is why we believe that in addition to not being owned by a bank or large dealer group, a truly independent financial adviser should operate on a “fee for service” method of remuneration where the client pays for the advice just like any other professional service.

I’m looking for an independent financial planner. What should I be looking for?

Firstly, forget contacting a financial planner based on flashy marketing campaigns on television and on billboards. Truly independent financial advisers usually don’t have the marketing budget to afford these. You can also give the financial planner at your local bank a miss as they will be employees of that institution.

What you should be looking for is a financial planner who has their own Australian Financial Services Licence (AFSL), or is part of a smaller planning practice with their own AFSL. If you meet with a planner, be sure to read their Financial Services Guide (FSG) carefully as this should clearly explain how that financial planner is paid, and whether they operate on a commission or fixed fee for service basis. The FSG will also tell you about the ownership structure of the business and whether a large corporation has any share in the business. If seeking the advice of an independent financial planner is important to you (and it should be!), make sure to satisfy these two main criteria before entrusting them with your financial future