Besides in-branch bank advisors and insurance company reps, there is little clarity across the industry on what constitutes independence. This is not unique to financial services. Countless businesses around the world struggle with a crisp definition of autonomy, no matter how resonant the term might be with customers.
One way to define independence relates to ownership. If an advisor reports into a corporate management structure, either directly or as a result of their firm’s acquisition in the past, then strictly speaking they cannot claim to be independent. Corporate employees are not free to do as they please, because that’s not how corporations work. They tend not to promote employee independence.
By this narrow definition, advisors who don’t work for a corporation can claim independence. But that’s simplistic. There are plenty of advisors at firms considered independent by our industry who have to go through an approval process for at least some of their product recommendations. That’s not wrong, but is it what clients think they’re getting when promised independent advice?
Investment Executive reached out to a small group of seasoned industry professionals to ask for their definition of independence. The fee-only model came up, not surprisingly. There’s a logic to that, but it would rule out a lot of dedicated professionals who earn the commissions they receive by providing genuine client-centric value.
Those committed to the role of fiduciary deserve consideration. As do those who are free to provide advice that doesn’t align with their employer’s chief economist, market strategist or some other senior spokesperson.
What surprised us was how many of the recommended criteria related more closely to best practices than independence — unbiased advice, professional licensing and the like. Valid, no doubt. But the logic can get a bit circular. Again, plenty of commissioned advisors give unbiased advice.
We think it’s time to stop talking about independence. It’s too loaded a term, with too little consensus around its definition. It puts advisors outside the corporate world in a favourable light that not all of them deserve. And it does the opposite to corporate-owned firms that genuinely empower their advisors to act in their clients’ best interests.
If it hasn’t already lost its effectiveness as a marketing term, it soon will. Consumers have grown cynical about our industry.
A little understatement is in order, and a big dose of transparency. Talk to your clients and prospects about what you do and what you don’t do. Share your product recommendation process. And tell them how you get paid. Fair?
This article appears in the February issue of Investment Executive. Subscribe to the print edition, read the digital edition or read the articles online.
Canada must modernize financial legislation
Opinion: Failure to adapt risks leaving the nation behind