Conceptualising Financial Advice in Australia: The Impact of Business Models and External Stakeholders on Client’s Best Interest Practice

Abstract

Abstract: Many individuals entrust financial advisors to navigate through important financial decisions, yet extant research and persistent scandals bring the effectiveness of advice into question. In examining the Australian financial advice sector, we determine when financial advice can be provided in a client’s best interest and formulate a model differentiating types of financial advice and their relationship to best interest practice. We extend this model to form an integrated framework considering external stakeholders that encourage, and business models which prevent, best interest practice. Our examination reveals some business models prioritise financial institution interests whilst thwarting external stakeholders encouraging best interest practice.

Keywords: Financial advice, Financial planning, Ethics, Fiduciary duty, Client best interest

JEL Classification: G02, G18, G20, G28, G29