“To see the right and to not to do it, is cowardice”

                                                                              - Confucius

Almost 5 years after delivering his final report, former High Court justice Kenneth Hayne, recently discussed his Royal Commission at a conference of actuaries.  His message was clear: the finance sector still has much to learn about conflicts of interest and what to do about them.

Financial planners are fiduciaries

Conflicts of interest are particularly concerning in financial advice because of the ‘asymmetry of knowledge’ dynamic between the client and their adviser.  The adviser is an expert in their area of practice and the client is seeking help. It’s a classic fiduciary relationship, not a commercial one.

A fiduciary is someone who manages money or property for someone else. When you’re named a fiduciary and accept the role, you must manage the person’s money for their benefit, not yours.

This benevolence doesn’t come naturally to human beings.  We are hardwired to be focused on the best possible short-term outcomes for ourselves.  It’s like Jack Lang famously said, “Always back the horse named Self-Interest, at least you know it’s trying.”

Royal Commission was our tipping point

But over the course of the Hayne Royal Commission into Financial Services, it became crystal clear to us that things had to change.  The financial services industry had forgotten how to serve.  It had become unhitched from community expectations. 

The community expects financial advisers to serve their clients and their clients alone.  There should be no other vested interests.  No employer seeking to distribute its in-house financial products. No employer seeking to limit the topics of the advice just because it’s easier. 

And advisers should be paid only by their clients.  No commissions, volume-based bonuses, or asset-based fees that are linked to the number of products sold. Put simply, nothing less than independent, unbiased advice.

Australians want independent and unbiased advice

Research consultancy, MYMAVINS, recently asked over 400 Australians about financial advice.  The research uncovered high unmet demand for independent advice. More than nine in 10 Australians (92%) agree that it is important that financial advice is independent and unbiased.

Yet, according to the SuperGuide Independent Financial Adviser Directory, there are only 135 truly independent financial advisers Australia wide. That is less than 1% of the 16,000 advisers currently practising in Australia.

Lake Macquarie Business Excellence Awards

It takes courage to build an independent financial planning practice.  Our practice in Newcastle, When Financial Solutions, was founded by Chris Keating and Rick Latimore in early 2022.  In less than 18 months, with the support of their families and their communities, and with the backing of the Catalpa group, they have built a thriving practice with the right foundations.

When Financial Solutions - Newcastle has been nominated for a Lake Macquarie Business Excellence award in the Best Start-up category.  It is recognition that true innovation doesn’t need to originate in Silicon Valley; with vision, hard work and a generous dose of client care, it can happen in Eleebana.

Please consider voting for When Financial Solutions in the People’s Choice award here. Voting is easy and it only takes a few seconds.  Voting closes 13 July.

This article is general and does not consider your personal circumstances so it may not be appropriate to you.  If you would like advice specific to you, please let us know.