Trying to explain best interest (and governance)…

Spoke to a financial advisory firm last week who were very excited about their very own investment platform which they now intend to offer to their advice clients.

The ownership of the platform is a couple of the original owners of the financial planning firm. Wherever possible all new funds will be deposited onto the platform. They intend to gradually switch the majority of existing clients funds across when they review their advice clients. The platform is a part of their longer term thinking to leave their existing institutional license and obtain a licence of their own for greater independence.

They also have ambitious plans to roll up and acquire several similar like-minded advisory firms across the country. They aim to transfer the investment funds of the rolled up firms onto their new platform as well. They plan, over time, to expand the ownership of the platform to the director of the firms they might acquire as well.  

They confidently talk about the value this arrangement offers their advice clients.

They cite the real savings in cost of funds management when compared to their former offerings. They explain the flexibility, the control, the tax effectiveness, the better reporting, the ability to tailor to an individual client’s investment or ‘ethical’ preferences. All up, they reckon the clients best interests are truly being served.


Best Interests?

Is this arrangement really in the client’s best interests?

Or is this acting in the best interests of the owner of the platform who happens to be the same firm giving the advice?

Some of today’s mindsets in financial planning industry resembles the ‘boiling frog‘ story.

Having been exposed to a bit of ‘hidden information‘ or ‘vertical integration‘ or ‘self-interest versus public interest’ or ‘sales targets‘, advisers cease being shocked by potential conflicts and justify their strategy as being commonplace and therefore can easily conclude that cheaper or ‘better’ offerings such as own platforms serve their client’s best interest.

They understandably back their strategy quoting their first-hand experience that not one of their clients has objected. In fact, their experience is that their clients are embracing the new arrangements.

Is this any different to the supermarket or pharmacy chain having their ‘own brand’ label of groceries or drugs?

Is this just an extension of ‘one-stop-shopping’ which aims to provide both the convenience and quality control from the one respected and aligned source?

Slippery Slope?

Or is this the top of slippery slope which quickly falls towards a systemic bias away from best interests of the client and the Australian public towards best interest of the advisers who are having a bet each way making money on their advice and product inherent in their advice?

Would you expect your orthopedic surgeon to have an ownership in the firm that makes the replacement hips (which is often a significant cost of the procedure) she hammers into you?

I wonder how advisory firms who have ‘interests’ in an aligned product offering can properly offer financial governance for their advice clients whilst also aiming to make a profit (or build value) in an aligned product offering?

If these advisory firms are positioning their offering as that of the financial governance, direction, support and management of their advice clients financial lives, can they call themselves advice professionals?

Or should they be referred to as ‘resellers’ of their own products which might better illustrate how they make money (and build value) for themselves?

What do you reckon?

Photo credit: ©


About Jim Stackpool

For nearly 30 years Jim has influenced, coached, and consulted to advisory firms across Australia. As founder of Certainty Advice Group, he leads a like-minded team of professional advisory firms seeking to create greater certainty for their clients. As an author, blogger, columnist, and keynote speaker, Jim is regularly called upon for his professional insights into the advice industry. His latest book Seeking Certainty is available now.

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