I am Liberated and Translucent
In your company or even your industry you often have a phrase that is so often repeated that the true meaning is lost to the extent that it could easily be substituted with something else just as meaningless. Within financial advice industry, you will often hear the phrase ‘I am independent and transparent’. But what does this mean and why should you care?
(Without knowing what it really means, I could just as easily state that I am liberated and translucent – it sounds so much more exciting!)
As a financial adviser, I recommend strategies to improve your wealth. As part of this recommendation, I would propose various products to help you implement the strategy. Without a means of implementation, the advice would be meaningless. It would be like a dermatologist telling you that you need a cream with a very high content of Hydroxy acids but without giving you a name. Hundreds of creams contain this ingredient – you would be lost.
On the other hand, by giving a specific recommendation, I am selling another companies product’s. I may be offered incentives by the company for doing this. This is where independence and transparency becomes relevant. You want to make sure that I am acting in your best interests and not my own.
In the case of investment advice, commissions were abolished several years ago, so I can confidently state that I am independent – well almost.
Similarly, to not being able to have an entire farmyard in my back garden (something I have to explain to my six-year old at least once per day), in order to protect the interests of the community as a whole, I have independence within certain boundaries.
Within my firm we are limited to only use investment managers that have been highly rated by research houses and to work within certain asset allocation frameworks. (Ok, I have lost you)
The first point is easy to explain. Research houses spend multiple hours analysing the various investment managers and then rate them according to whether they have a good team, a sound investment process and a well-managed business structure. Having previously worked in investment research, I understand the enormous amount of work that goes into this process and the level of security it provides. Regardless of this restriction, I would only select the most highly rated managers for my client portfolios. So in practice, this is not really a limitation.
The second point is more complex. Asset allocation – the split between equity, debt and property (and a few others) is the primary determinant of a portfolio’s risks and returns. The guidelines give you, as a client, a good indication of what you can expect. Having no guidelines could be compared to clothes designers not sticking to the conventions of small medium and large – shopping would be a nightmare!
In the case of insurance – I do receive commissions from the companies that I place business with.
As a result of this, prior to becoming a financial adviser I was always drastically under-insured – I was not going to be sold to by these commission hungry insurance brokers.
So in my own business, my entire process regarding insurance is 100% transparent. This begins with determining the level of cover you require, to selecting the insurance company to choosing the underlying features of the product.
From my perspective, I really appreciate the commission structure as it enables me to subsidise the cost of the advice and pass this on to my clients in the form of lower fees.
I know that this article has been a little heavier than my usual light-hearted tone, but independence and transparency is an incredibly important feature when choosing a financial adviser.
It ensures that the adviser has your best interests at heart.
If you feel that your own adviser is not independent and transparent or worse you haven’t received advice at all, please get in touch.
(PS: I am still working on being liberated and translucent.)
Disclaimer
Marisa Hoffenberg and Growth Point Financial Pty, Ltd. Are Authorised Representatives of Synchron, ABN 33 007 207 650, 243313. This is of a general nature only and is not intended as personal advice. It does not take into account your particular investment objectives, financial situation and needs. Before making a financial decision you should assess whether the advice is appropriate for your individual investment objectives, financial situation and particular needs. We recommend that you consult a professional financial adviser who will assist you. The information and certain references, where indicated, are taken from sources believed to be accurate and correct. To the extent permitted by the law, Synchron, its representatives, officers and employees accept no liability for any person that relies on the information contained herein.