Guideline to check if your investment advice is unconflicted and independent?
Updated: Aug 5, 2022
How to remain aware and ensure that investment advice from advisors is in your best interest.
a) Unconflicted- conflict can occur where the sellers/distributors of investments through a platform are also your investment advisor. As some providers maybe receiving commissions for the distribution of product which they do not rebate or disclose, this results in conflict. A strong recommendation from the Cole Review (2008) is that advice and manufacture/distribution of product be totally separated to eliminate conflict of interest actual or perceived.
b) Independent with full ADI Coverage - access to the full range of ADI’s of your choice when placing Term deposits to create pricing tension and better returns. The Big 4 banks should be included as they collectively control approximately 80% of the market. Limited access to only certain banks within your policy constraints can negatively impact returns
Most Councils use financial service providers for investment advice and to facilitate the purchase of investments. As a result, it is important to do a health check to ensure that they are getting the best professional service from these providers.
Financial Services Provider Health Check
Are you getting:
1. Access to diverse range of ADI’s of your choice including the Big 4 Banks
Do you have full access to the investable universe prescribed by your treasury policy to ensure your returns are maximised? Some providers have a limited product range due to relationships with financial institutions which can lead to sub optimal results for your company.
2. Independent and Unconflicted Advice
There should be no conflict of interest between advice provided and the recommended product or platform by the provider. Any conflicts must be disclosed in writing. This must include detail of all fees received on recommended products including any brokerage and commissions received by financial service providers from product providers and financial institutions. Separation between manufacture/distribution of product and investment advisor is strongly recommended.
3. Value for Money
Always prudent to annually review fees paid to service providers versus the competition. Beware of fees based on the % of $ value of investments, as this can result in significant fee revenue to the provider when $ values increase without necessarily any increase in the level of service and performance being provided than at lower $ volumes. Always try to negotiate a fixed fee or cap on fees with your provider to ensure budget certainty and you are receiving value for money.
4. Full Financial Risk Disclosures on Products
Full disclosure by the advisor of the financial risks including potential losses on all investments. These risks must be fully understood by your organisation before entering into any transactions