The senseless search for the Holy Grail of Independents
Best Practice Advice & Compliance

The senseless search for the Holy Grail of Independents

September 16, 2013

by Tony Vidler
It is no surprise really but we have just found out that the cupboard is almost bare of independent investment advisers in New Zealand.  In fact, there are simply not enough to go around.

If all of the NZ adults who are in the top income quintile sought advice from an AFA there would be about 545 clients for each of them.  If all of the top quintile sought advice only from an AFA who might be labelled “independent”, then each independent investment adviser would be dealing with 2,120 clients each.

David Chaplin, an excellent financial journalist and industry commentator, conducted a very interesting piece of research (AFA Today) where he laboriously checked the public register of investment advisers, ascertained which advisers had affiliations with which institutions or groups, and concluded that there was only likely to be around 18% of the 1,895 Authorised Financial Advisers who could probably be labelled “independent”.  That is, only about 325 of the AFA’s might be independent.

While this is interesting, and undoubtedly a boon to the market share aspirations of those 325 advisers, I cannot help feeling that the search for “independent” advice is rather like the Quest for the Holy Grail.  It is fruitless and doomed to years of frustrated wandering simply because there is no Holy Grail to be found.

The ongoing presumption is that if an adviser does not have an overt link to financial institutions or particular products and is not working on a commission then they are independent.  The word itself can be defined as:

Free from the influence, guidance, or control of another or others; self-reliant: an independent mind.  Not determined or influenced by someone or something else; not contingent: a decision independent of the outcome of the study.”

Is anybody actually ever free from influence?

Despite business structures, licensing or regulated standards, conflicted interest arrangements or any other fabrication to construct the illusion of independence we all remain subject to our own individual bias and prejudice.  Previous experiences with particular institutions, or product types, or client types can and do sway our opinions – inevitably preventing any of us from being truly independent in thought.  Each of us collects information and facts at a prodigious rate, and then constructs a view of the future that is influencing the advice we provide.

Each adviser sees a problem from a different perspective, with each holding existing views based upon past experience and learning, and with each having a view of how best to manage the murky future.  There are no independents in the real world.

True professionals are still great advisers even though they are never completely independent, or free from bias.  They provide reasoned objectivity, which is something quite different to independent thinking.

The real challenge is not to construct an illusion of independence, it is to achieve excellence in 2 key standards:

1.  Total transparency

2.  Mitigation of conflicts

With total transparency there is a real chance of consumers having confidence in the integrity of both the adviser and the advice process.  Conflicts of interest cannot be entirely removed, especially in smaller communities or countries. They can be mitigated, and the impact lessened or negated significantly.  With total transparency in the conflict mitigation there is the opportunity for consumers to make good informed choices as to whether the advice is likely to be objective enough for their purposes.

The continual academic pursuit of the mythical Holy Grail that is “independent” advice is a senseless search that will lead consumers no closer to finding valuable advice that they can benefit from.


© 2013 Tony Vidler.  All rights reserved.
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Comments (2)

  • In a country where the majority of advisers spend 4-5 years studying for a Diploma in Financial Planning, and then give over all portfolio decisions and research to companies that are more focused on individual business risks to their company, than they are to market risk to their clients, it is pleasing to hear there are a number of advisers out there still that can actually think for themselves, and offer advice and portfolios that are not scripted by a companies compliance department.
    Keep up the good work you independent folk!

    Let common sense prevail
    • It is worth noting of course that just because an adviser doesn’t have an obvious institutional or group allegiance it doesn’t necessarily mean that they do not contract out research and/or portfolio construction decisions…

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