Very few planners or advisers could truly claim to be independent according to a recent decision of the Advertising Standards Complaints Board.
“Any financial adviser who received remuneration from issuers of financial products in relation to the sale and servicing of those products could not claim to be ‘independent’,” it says.
This ruling has substantial ramifications for the financial services industry as the majority of intermediaries accept commissions and fees of one sort or another.
While many intermediaries rebate these payments back to their client and then charge a fee themselves, the majority are accepting on-going trail commissions.
While independence is considered an important principle within the industry the term has come to be abused and interpreted rather broadly.
The board warned the industry that use of the word independent should “be treated with great caution and respect.”
New Zealand operates under a regime of self-regulation and there is no definition of the term, however in the United Kingdom independence is defined by statute, while in Australia the Australian Securities Commission provides a definition of the concept.
The complaint which triggered this decision was made against two Money Managers advertisements. The complainant, C Woods, expressed concern about the self description of Money Managers as “independent investment advisers” and the level of disclosure in an advertisement.
The board noted that in Australia receipt of commissions did not prohibit the use of the word independent. In New Zealand though there was no such definition.
As Money Managers received remuneration from various fund managers for the sale of products, as is usual in the industry, it could not claim to be independent.
“The receipt of any remuneration from product suppliers may be customary in the industry, but as a consequence, intermediaries cannot state in an advertisement that they are ‘independent’,” the board says.
“In short, there is a dependence on the product provider for revenue and therefore the use of the word independent is inappropriate.”
Also the board says because Money Managers had an exclusive right to market the FiRST Masterfund it lost any claim to be independent.
However, the board pointed out that Money Managers could legitimately say it offered “unbiased advice”. Independent and unbiased were not synonymous terms and although an advertiser may be deemed not to be independent it could not be inferred that any advice was other than fully professional and unbiased.
The board also ruled Money Managers did not provide sufficient disclosure about its rights to market and promote its master trust.
Very few planners or advisers could truly claim to be independent according to a recent decision of the Advertising Standards Complaints Board.