Why is independent advice important?
There has been a lot of media recently discussing the motivation of financial advisors and who they are really working for (you may have read our previous insight – “Have you done enough due diligence on your advisors?”).
One thing we have noticed, is that it is getting increasingly more difficult to work out who is the beneficial owner of your advisor. Have a look at the subsidiaries section in any large financial institution’s annual report…there may be some names there that you did not expect!
Understanding the motivation of your advisor is just as important as the advice itself. It ensures that you are not just being sold something to provide for somebody else’s bonus, rather, you are receiving advice that will provide for your retirement.
Independence is important…
As many of you already know, most financial advisors have an Approved Product Listing (“APL”) from which they can choose their investments from. The question is then, who decides what goes on the APL? Having someone who can give you an independent perspective is critical to ensure that the advice you are receiving is for your best interest, not your advisor’s.
Here are a few quick questions that you may consider asking your advisor to check their independence:
1. Independence: Are they owned by, or affiliated with a large financial institution? Ask your advisor who ultimately determines their APL…you can also check this is through their financial services guide or website. Understanding how they are connected may help put advice in context.
2. Risk & Review: How are the investment choices made? Are the funds just being put into a template for the risk profile or are they being personally tailored? Ask your adviser if there are alternative options for the investments chosen. Consider doing some of your own research prior to a review meeting, that will ensure a more robust investment discussion.
3. Bonuses & Incentives: Ask whether they receive commissions on any of the investments or strategies they are suggesting. That is usually their conflict – their greatest earning potential verses your best interest.
Please note that the above questions should not necessarily dictate your choice of adviser, as value and performance are also important. However, the answers you get to the above questions may tell you whether you need to keep looking at other options as part of your overall strategy. In effect, you will artificially create your own independence. Do not to limit yourself to one set of options, this will only deprive you of other comparable, more affordable opportunities.
The importance of independence is being able to receive unbiased advice, free from any outside influences or incentives. Choice is paramount in providing you with a range of options that meet your needs – one size does not fit all. This is why iSUPER® do not require trustees to use a particular bank, broker or any other product. We give the control back to you over how, and where, you invest your superannuation.
If you are concerned that the advice you are receiving may not be independent, we recommend getting a second opinion to serve as a “sanity check” – if it sounds too good to be true, then it probably is… caveat emptor!
To find out more about how iSUPER® can help you understand the importance of independence, call one of the iSUPER® team today.