It Comes From Within
If you have been approached by an Independent Financial Adviser (IFA) before, you would probably been told that IFAs can offer products from many providers and put client’s interest first. There is a fact and an opinion in the statement. The fact is that IFAs does have access to many different products from different providers while putting client’s interest is an opinion. Having access to different does not mean the IFA will put the client’s interest first and source for the best deal. The adviser might take advantage of the situation and opt for the products with the best commission structure instead!
In an Straits Times article on 26th June 2010, Excuse me, are you an independent adviser?, the issue of volume bonus was raised by Lorna Tan. Volume bonus are extra bonus for hitting certain sales quota or renewals. Volume bonus may be paid in advance for the commitment to deliver certain amount of sales in a stipulated time. Volume bonus can sway the firm and the adviser to push certain products.
A ‘fee-only’ advisory firm was quoted as treating its independent status seriously by rebating commission. The question to ask is whether ALL commissions are rebated. While a ‘fee only’ model may be a good idea, it does not remove the chances of unethical conduct totally. As the income is derived from fees, an unethical adviser may try to position the client into a fee paying setup when a commission-based solution may be more suitable.
Different advisory models have its pros and cons. Some models are inherently handicapped by the range of possible solutions while others may be abused by the adviser. At the end of the day, the honesty of the adviser plays a key role in the journey to one’s financial goals.
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Tags: Ethics
