Is your investment adviser / distributor truly "independent"?

Investment advisers
Conflicts of interest

Is your investment adviser truly

Let's consider the term "independent" in the context of investment advisers / distributors(Note). An average investor may think that independent investment advisers / distributors are independent from product issuers and will provide unbiased advice and make recommendations that are in the investor's best interest.

But this is not necessarily the case in reality. Indeed, many investment advisers / distributors marketing themselves as independent may not be truly independent because they receive commission from product issuers. Such remuneration methods could undermine independence and objectivity, and give rise to conflicts of interest.

New measures restricting the use of the term "Independent"

Starting from 17 August 2018, not all investment advisers / distributors can refer to themselves as being "independent". Under the SFC's new requirements, investment advisers / distributors under SFC's regulatory regime are restricted from representing themselves as being "independent" or using any other terms with similar inference (e.g. "independent financial advisers", "IFA", "impartial", "neutral", "objective", or "unbiased") when distributing an investment product if monetary benefits from other parties including product issuers are received. Additionally, such investment advisers / distributors have to provide clear disclosures to investors on whether or not they are independent and explain the reason.

What does it mean if an investment adviser / distributor says it is "independent"?

What questions should I ask if an adviser says that it is not independent?

For non-independent investment advisers / distributors, it is important to know (1) their relationship with the product issuers and (2) the commission they will receive from selling the products to clients. The information can help clients better assess and consider the advice offered by the investment advisers / distributors. Learn more about sale-related information disclosures by investment advisers / distributors.

Different meanings under different regulatory contexts

Investors should note that these requirements are only applicable under SFC's regulatory regime. This means that not all investment advisers / distributors selling investment products in Hong Kong are subject to these requirements. Hence, when purchasing investment products from investment advisers / distributors to whom the requirements do not apply (e.g. when purchasing investment-linked assurance scheme (ILAS) from insurance intermediaries), investors should bear in mind that the word "independence" may have different meanings under different regulatory contexts. Where an investment adviser / distributor represents itself as being "independent", you should ask the investment adviser / distributor to know more about what it means when representing itself as being "independent" and whether it receives monetary benefits for selling such investment products to you.


Note: Investment adviser is a broad term. In Hong Kong, it generally refers to intermediaries (individuals or companies) selling or advising on different types of investment products.


13 August 2018