Industry Fund Services (IFS) has changed the name of its new advice licensing model following backlash from financial advisers last week over its use of the word ‘independent’.
Early last week, IFS announced it would be launching a trial of its Independent Adviser Licensing Model, designed to provide its advisers with referrals from partnered industry super funds.
The specialist super fund licensee faced considerable backlash online in the wake of this, with advisers taking issue with their use of the word ‘independent’.
Speaking with Money Management on 21 January, IFS executive manager, advice service Adrian Gervasoni said he had also received messages from advisers raising similar concerns.
Just two days later on 23 January, IFS announced that the new licensing model had been officially renamed as the IFS Trusted Advice Model.
While IFS didn’t directly reference the criticisms raised, the statement did include a note that suggests the earlier backlash was a key driver behind the decision to change the name.
It said: “This model is not intended to denote the meaning of ‘independent’ as referred to under S293A of the Corporations Act 2001 (Cth). It refers solely to advisers being external from, and not part of, the super funds themselves.”
The legislation in question details tight restrictions on the use the terms ‘independent’, ‘impartial’ or ‘unbiased’ in relation to financial advice.
Subsection 2a states that these terms may only be used for a person that doesn’t receive commissions or any form of remuneration calculated on the basis of the volume of business placed by the person with an issuer of a financial product, or gifts of benefits from a financial product issuer which may be reasonably expected to influence the person.
Industry fund ties
In addition to being a legally protected term for financial advisers, IFS’ foundational connection to industry super funds left some questioning how the licensing model could meet these strict standards.
It’s important to note that IFS is an AFSL provider that partners with super funds and is a wholly owned subsidiary of Industry Super Holdings (ISH). ISH is owned by several shareholders including Australian Retirement Trust (ART), AustralianSuper, BUSSQ Superannuation, Brighter Super, CBus, CareSuper, Equip, First Super, HESTA, Hostplus, NGS Super, REI Super, Team Super, UniSuper and Vision Super.
With this in mind, subsection 2d and 2e of the legislation are important as they state that these protected terms may only be used for a person carrying on a financial services business or providing financial services so long as they operate free from direct or indirect restrictions relating to the financial products on which they provide financial services, and operates without any conflicts of interest that may arise from their association with issuers of financial products.
Speaking with Money Management last week, independent financial adviser Nathan Fradley pointed to the legislation, questioning how IFS would ensure there is no undue influence from industry funds on the advice provided under this model.
“It comes back to [subsection e]. Is there influence here? Yes. And then on top of that, you have this idea of impartiality. There’s no revenue. There’s no, ‘We’ll pay you more volume-based bonuses’. That doesn’t happen. But there’s this issue of impartiality, and that’s the [subsection d] bit where it says you have to be free from restriction on what products you can recommend.”
Despite the criticism, IFS’ Gervasoni backed the name at the time, explaining that the term ‘independent’ was used as a way of describing the kind of adviser they wanted to attract to the offering.
“What we wanted to have it be clear is, one we’re looking for advisers independent of super funds, not currently employed by product manufacturer. Self-employed advisers is the kind of target market.
“So, there’s independent in terms of the broad use of the word. In terms of whether the advisers themselves could use the term ‘independent adviser’, it will depend on a case-by-case basis.
“The rules are pretty clear around the use of the term ‘independent’ as a starting point. We can’t see why there’s any knockout reason why you couldn’t use it, but it is going to come down to each of each adviser licensed under this arrangement.”
Reactions to the name change
Responding to the update from IFS, Fradley said the new name provides greater clarity and is better aligned with the intention of the licensee.
“I was glad to see the name change. Whatever their reason, I hope it considered that their use of independent raised questions and created confusion. Some think it should never have happened, but I appreciated it.
“Independent is a protected term, and independent advisers place a higher requirement on themselves to be able to use it. Being independent doesn’t make you any better as an adviser, but the ability to use the term recognises the higher requirement. The use of the term by adjacent businesses can be a slap in the face of that; especially if the standard is only placed on the adviser and not more broadly, which seems to be the case a lot in our world. It can also be misleading for clients.”
Following the name change, IFS attempted to provide some clarification on its website on whether advisers under its model would be able to use the term ‘independent’, which one adviser on LinkedIn pointed to as an indication that the licensee “[doesn’t] understand how financial advice works”.
The licensee explained that any use of the term would depend “entirely on the adviser’s own practice model and the way their business is structured, including how they manage remuneration, conflicts, and service delivery. Participation in the model does not automatically result in advisers being labelled as ‘independent’.”
However, a statement to Money Management from ASIC last week suggested that whether or not an adviser can be called independent is highly dependent on the other advisers operating under the same AFSL.
While the regulator said it was unable to comment on the IFS case in particular, it flagged details of its regulatory guidance around use of the term.
“In accordance with RG 175.175.51-52, where a financial adviser who is an authorised representative of an Australian financial services licensee and neither they or the AFS licensee receive commissions, volume-based payments or other gifts or benefits, but other authorised representatives of the AFS licensee do, then the first mentioned financial adviser cannot use restricted terms such as ‘independent’.”
