49 – What is an independent financial planner (from the point of view of the financial planner)?

If you can’t set your own pricing system, you are not really running your own business. You are not an independent financial planner.

Yes, we know. The Corporations Act (s 923A, to be exact) prohibits a financial planner from describing himself or herself as independent unless they belong to a licencee in which no adviser receives any form of third party payment. It is a prohibitive requirement, and it means that there are very few planners in Australia who are allowed to describe themselves as independent. You can read more about it here.

As an aside, we are not quite sure how some licencees get away with describing themselves as ‘independently-owned.’ ASIC must be busy elsewhere.

Just for the moment, though, use the word ‘independent’ as a noun rather than as an adjective. (Strictly, ‘independent financial planner’ is a compound noun). Regardless of how they can describe themselves to their clients, from the point of view of the planner themselves, what makes an independent financial planner? How can a financial adviser come to see themselves as an independent business person?

An independent financial planner is one who is genuinely running his or her own practice. He or she is not merely an agent of some larger organisation. Obviously, institutionally-aligned advisers, which some estimates suggest account for more than 80% of all financial planners, are out. But so, too, are those advisers whose dealer groups insist on things being done the dealer groups’ way. These advisers have more in common with franchisees than with independent businesses. 

This extends to pricing, where many ‘independently-owned’ licencees insist that their advisers charge their clients in a particular way. Typically, this requirement exists because the licencee wants to take a cut of the adviser’s fees, and they insist therefore that advisers maximise the particular types of fee that are most easy for them to access. Usually, these are commissions for life insurances and FUM-based fees extracted via platforms.  

Advisers with these kind of restrictions are not independent business people. While the cash might flow in different ways, they are little more than glorified employees, who are paid some fraction of the fees they generate.

If you can’t set your own pricing system, you are not really running your own business. You are not an independent financial planner. 

When it comes to pricing, an independent financial planner is one who can set his or her fees according to the specific needs of his or her business. He or she can accept commissions (on life insurances up to the limits allowed), use time-based billing, FUM-based billing, project billing or some combination or combinations of some or all of these. 

This is a key tenet of running your own business: you need to be able to maximise your own return while also ensuring that your business is sensitive to the needs of your particular clients. You are a professional in a professional relationship with your clients. Your licencee should ensure you are compliant. They should not be telling you how to price your client relationship.

 By all means, let Dover recommend various options. That is what this whole document is about. But you must insist (as do we) that you are the one who makes the decision. 

Obviously, your fee structure has to comply with the law. But provided that the fee structure is legal, a truly independent business owner is one who chooses the pricing structure that best suits their needs.

The Dover Group