Here’s an unlikely financial advice question: “Where does your favourite pizza come from?”
When we last moved house, we moved out of delivery range of my favourite pizza delivery place. Devastated. So, the search started. Every time pizza was being hankered for, we tried a different place.
Nothing came close. All options were second rate. So we eventually settled for the best of a bad bunch. (Note to self: check if UberEats will deliver from old favourite!)
I worked at a major pizza chain as a teenager. But my favourite pizzas have always come from “independent” stores. They just make them better. Not all of them, obviously. But generally, when I find a ripping pizza, I’m never looking at a box from a major chain.
Pizza, thankfully, is transactional. If you don’t like a pizza parlour, you can put a gun to the head of that “relationship” after one bad pizza.
Financial advice, however, is relationship based. It can take hours and hours of effort to find one you’re comfortable with. Longer still to get the relationship working smoothly. And ongoing hours of effort are required to make sure the relationship provides what you want as a client.
But like pizzas, the best financial advisers are (in my opinion) unlikely to come from the big boys. These are the financial institution monoliths, who hire advisers to be the distribution network for their products.
The biggest players have invested billions into these products. Super and investment platforms, insurance offerings and the underlying investment funds that jostle for your attention with their performance.
They need to find customers to use them. Owning an adviser network to do the selling for you simply makes sense.
That’s why “aligned” advisers exist. And why the major financial organisations have spent so many billions of dollars buying up advice groups during the last two decades. And they are estimated to employ about 80 per cent of all financial advisers in Australia.
Why is this a problem? Most people don’t think about the link between the adviser and their employer.
Going to an aligned adviser doesn’t necessarily mean that you are going to end up with a dud adviser, or even a dud product. But, clearly, each of the different companies can’t all be selling the best products.
If you walk in to see an AMP adviser, you should probably expect to be recommended AMP insurance and AMP investment funds being offered on an AMP investment portal.
Why is this a problem?
It’s probably easier to understand when it comes to getting a mortgage. If you walk into the Commonwealth Bank to get a loan, are you likely to be offered anything other than a CBA home loan?
No. And you might have called CommBank because you trust the brand.
But mortgage brokers will usually have 30 or more lenders to choose from. You then have someone who knows the products of a number of lenders and can possibly recommend a strong lender, whose name you trust, that might work better for you than your first choice.
Non-aligned financial advisers operate similarly.
They often have the ability to check with a larger number of insurers, consider a wider range of platforms and look for solutions that are outside the box (if they have the skills and expertise).
The real problems of aligned advisers stem from something outsiders know little about, called the “approved product list”. This is the list of financial products from which an adviser can recommend. If it’s not on the adviser’s list, they can’t advise you on it.
Advisers need licences. Licences are provided by a licensee. One of the roles of the licensee is to set the APL.
If a big financial firm (through their financial planning license) wants their advisers to “sell” a particular product, or don’t want them to sell a competitor’s, it’s as easy as putting them on, or leaving them off, the APL.
To be fair, the big boys have widened their APLs, to a degree, in recent years.
But the general rule still applies – the more a licensee is non-aligned, the broader their APL seems to be.
In the end, nothing should be more reassuring for a client than having a knowledgeable adviser. It’s not about product, but about giving you the confidence that they know how to find a solution that works for you and your family.
Disclosure: Bruce’s business, Bruce Brammall Financial, is licensed by Wealthsure Financial Services (AFSL: 326450), which has no ownership by a major financial institution.