The myth of independent advice


The search for ‘independent’ advice is rather like the Quest for the Holy Grail.

The search for ‘independent’ advice is rather like the Quest for the Holy Grail. It doesn’t exist. The search is fruitless and doomed because there is no Holy Grail. Independent advice simply does not exist.

The argument for those wanting to say they are independent (or being allowed to by regulators) essentially rests upon the presumption is that if an adviser does not have a preferential relationship with a financial institution or particular products and is not working on a commission then they are not dependent. Ergo they miraculously become Independent, because that is the opposite, right? Or is it?

The word ‘independent’ 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?

I would argue that those advisers who work on a non-commission basis but use the same continual range of institutions are in fact co-dependent, or perhaps inter-dependent if you prefer. Whatever; they are not independent. 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. We carry our experiences and biases forward to the next round of decisions or recommendations we make…we are not free from the influences of the past experiences. 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.

I don’t see this lack of ‘independence’ as a bad thing however. 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. Taking into account what we have experienced and learned and being swayed by those things is in fact what many consumers are hoping to benefit from so attempting to create an illusion of independent thought serves obodys’ interests really.

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 in many cases, especially in smaller communities or countries. They can be mitigated, and the impact lessened or negated significantly. With total transparency in the conflict mitigation even when it cannot be entirely avoided 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. The only ‘independent’ status which actually makes any sense is commercial independence. That advice business is independently owned and free to shift allegiances and product suppliers and maintain flexibility in how it prices and delivers services so it can best meet its clients requirements. It is responsive to consumer preferences, not institutional requirements. It is entrepreneurial and constantly seeking its own efficiencies in delivering value to market at a fair price.

To maintain that competitive position it does however have to operate with absolute transparency and constantly seek to be objective. I would venture to suggest that for most consumers that is what they expect ‘independent’ to actually be in real terms.

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