This is a very special word in the area of financial services. At least, it is legislatively important in Australia and a good starting point when you begin to consider money, advice and how they interact.
Let’s get technical for just a moment…
In Australia, the word “indepedent” and its use by financial intermediaries is covered in section 923A of the Corporations Act. For an extract, see the attached pdf file.
The bottom line is that a certain words – those contained in sub-section 923A(5) – cannot be used unless the advice provider can comply with the criteria contained in sub-section 923A(2).
OK, that’s enough of technical.
In more basic words (this is a simplified version – you should take the time to read the full section of the Act. It is well written for a piece of legislation) any person or business that provides advice in Australia cannot use the words :
- “unbiased” or
- any words or phrases, in any language that translate to anything like the English meaning of these words,
unless they can show that :
- They do not receive commissions (unless those commissions are rebated to the client in full),
- They do not recevie remuneration calculated on the volume of business placed (wherever),
- They do not receive gifts or benefits from an issuer of a financial product,
- Their employer (if any) or anone related to them doesn’t receive any of these things,
- They operate free from direct or indirect restrictions relating to the financial products they deal with, and
- They operate without any conflicts of interest from their associations or relationships.
As you can imagine, that is a very tight set of guidelines (even if inadequately condensed above).
A good source of information on things to look out for when seeking advice is the website of the Australian Investments and Securities Commission. They have a wealth of material that makes an excellent starting point when you are tackling this issue.
Some businesses are “independently owned”. This is a distinction that suggests the business is not owned by institutions or financial product providers. To some extent, this can be seen as helpful, if you go on the idea that an institution or financial product provider owning part of the business would influence the advice that is provided. Certainly this may be true on occasion but it is no indicator of unbiased advice.
For example, WSP Financial Services Pty Ltd is not owned by an institution (and is therefore “independently owned”) but that does not make our advice independent.
A good example of an organisation that meets the requirements for the term “independent” would be Centrelink (Australia’s social security authority). They provide a financial advice arm that does not receive commissions and has no reason to be influenced by commercial imperatives. Their financial advisors could also be expected to be impartial in their recommendations. Does this also mean that they are unbiased?
This is a far trickier question, as it can be argued that we are all biased in some way or another. No amount of legislation is going to clarify the full impact of bias on financial advice and recommendations. We will cover that in more detail later.