The debate should be about the quality of advice

Adrian Hondros

OVER THE last few years I’ve noticed industry commentators focusing on the issue of so-called ‘independence’ of advice and then drawing the conclusion that this leads to better advice.

It seems that the issue of ownership is hijacking the debate. It is ill conceived to draw the conclusion that ownership negates objectivity and quality in the delivery of financial advice.

If the Australian market was still product orientated then this notion of independence and ownership would have more credibility.

However, in the Australian market, a large number of funds recommended to clients as part of the financial planning process are administered through investment platforms that offer open architecture. For example, investment platforms such as Flexiplan (discretionary) and MasterKey (non-discretionary).

As investment platforms are primarily advice enablers, they effectively deal with any concerns around lack of choice due to ownership. They offer a wide range of managed funds and listed investments for advisers to choose from.

Advisers and clients have voted with their feet and the weight of funds inflow over the past decade indicates strong support for these advice-enabling platforms across superannuation and non-superannuation investments.

It can be argued that the outsourcing of both the administration and choice of underlying funds managers and assets provides the ultimate degree of independence for any adviser. This can be done with an investment platform like MasterKey or through model portfolios from research professionals.

When independent and unbiased portfolio implementation specialists create the funds manager composition of a portfolio, then surely this is independence in its purist form. I believe this independence is far more important to the client than the ownership of the advice business the adviser holds proper authority with.

Outsourcing the processes of administration and asset allocation frees up the adviser’s time to focus on building relationships, enhancing client service offerings and knowing clients in a more complete way than previously possible.

If quality advice is the key issue, then what does it look like and what is it that clients can expect from receiving it?

The profession of providing financial advice is now governed by rigorous educational and accreditation standards. This in turn leads to better outcomes for clients.

The focus on education and professional standing, such as CFP, is a good start, but now the hard work must be done to define and implement quality advice.

It is critical that we are mindful that the concept of quality is an evolving ideal.

The debate so far has focused on the quality of the initial plan and its recommendations.

My proposition is the entire planning process must include review and ongoing service, needs that have to be an essential part of delivering value to the client. Platforms, regardless of their ownership, are designed to enable that ongoing service to clients.

So what should the definition and assessment of quality advice include?

There is no doubt that knowing the client, platform and investment products are part of providing quality advice.

However, quality is seeking an intimate understanding of the client’s current circumstances, aspirations and lifestyle goals.

To be more specific, are the key elements of advice compromised by the ownership of the advice firm the adviser is with?

Goal setting, determining needs and objectives, understanding platforms and products, designing strategies, asset allocation and providing relevant technical advice are all skills of well-educated professional advisers and important parts of the process.

The advice business an adviser represents and the ownership of that firm does not compromise the quality of advice professional advisers offer to their clients or their abilities to perform different aspects of the process

The next dimension of quality advice is the need for it to be holistic.

The term holistic is meant to convey the fact that the advice has covered all the relevant needs of the client and all viable options have been considered.

The approach includes dealing with superannuation, investments, debt, debt restructuring, cash flow analysis, estate planning, risk management including life and income issues, taxation and accounting matters, as well as lifestyle and generation wealth management issues.

If the client is a business proprietor then the holistic approach considers the ownership of assets attached to the business entity and matters related to the creation of wealth outside of the business’ balance sheet, as well.

I believe quality advice is simply the means to an end.

The important end result is meeting the lifestyle expectations of the client and is our reason for being.

However, it is critical that we continue to meet our responsibility of ensuring the debate and the evolution of quality advice continues.

‘Independence’ to the client means their own outcomes are not compromised by ownership.

Quality advice is the process that delivers the outcome and this represents true professionalism.

Adrian Hondros is the managingdirector of Godfrey Pembroke.