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Commission, designations, qualifications on review hitlist

Regulation of financial advisers in New Zealand should have three key goals, the Ministry of Business, Innovation and Employment says:  To give consumers the information they need to find and choose a financial adviser, to make advice accessible and to give the public confidence in the professionalism of advisers.

Tuesday, May 26th 2015, 1:00PM 6 Comments

by Susan Edmunds

The Financial Advisers Act review's issues paper was released today, seeking feedback on a broad range of topics.

Commerce Minister Paul Goldsmith said some of the key questions included whether consumers understood adviser regulation and whether it had unduly reduced access to advice.

The issues paper says regulation is necessary because consumers might otherwise find it hard to determine the quality of advisers. Bad advice was sometimes only evident in the event of a market correction and could leave people worse off than no advice at all.

But the paper identifies a number of issues with regulation as it stands at present.

“We have heard that the regulatory framework is too complex for consumers. Consumers have noted that it is difficult to understand differences between classes of advisers, their different obligations, and their ability to advise on different products and give different types of advice. This may be undermining consumers’ ability to make informed decisions about which type of adviser to use and how to interpret their advice, and may discourage some from seeking advice altogether," it said.

It looks at whether the distinction between personalised and class advice is effective and says consumers seem not to understand the differences between the types of adviser.

It asks whether activity that could be more accurately described as sales should come under the umbrella of financial advice at all. “The FA Act may give consumers an inaccurate impression about the extent to which the ‘adviser’ is their agent and is acting in their best interests.”

It asks whether commission should be restricted or banned, notes that other countries are cracking down on this remuneration model, and says commission can create conflicts of interest. “The existence of commissions may also create a perception that advisers are less trustworthy and do not have consumers’ best interests at heart. This can have the flow-on effect of damaging public confidence in financial advisers.”

It tackles disclosure requirements and whether they should be extended beyond AFAs, whether a better term is needed for RFAs and whether it is appropriate to have different requirements based on the risk and complexity of the products advised upon.

It considers education standards and asks whether AFA requirements should be higher and whether RFAs should have requirements imposed.

The Code of Conduct for AFAs and the Financial Advisers Disciplinary Committee are also under the spotlight and DIMS gets a mention. The paper asks whether changes should be considered to reduce the costs on advisers who exercise some discretion but are not offering a funds management-type service.

MBIE acknowledges it must keep up with a changing market for financial advice – decumulation from KiwiSaver is likely to prompt a need for more advice and the advent of roboadvice will be a challenge for regulators and existing advice providers.

An options paper will be released later this year and final recommendations given by the middle of next year.

Tags: financial advisers regulation

« Issues paper on FAA review outSovereign finally confirms intention to sell Select »

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Comments from our readers

On 26 May 2015 at 4:27 pm w k said:
dear mr goldsmith, i am glad you picked that up - "consumers have noted that it is difficult to understand ... " it meant confused put in a nicer term. if i may add several years and millions of dollars has been spent too.

enlightened us, why is it that a few advisers (me included) have suggested putting a clearly defined title/role on our biz card, eg mortgage broker, fire & general broker or adviser, investment and life adviser, etc. some years now.

instead some bright spark came up with afa & rfa and within afa and rfa are different roles. in fact an adviser i know lost some biz 'cos of the confusion caused by this bright spark as his client thought he should use someone who is authorised - as in authorised financial adviser.

On 26 May 2015 at 7:12 pm w k said:
my apologies, missed out the last few words on 2nd para ..... some years now, regulators couldn't be bothered to listen?
On 26 May 2015 at 9:54 pm fedupadviser said:
AFA,RFA,QFE - does it matter no education of the clients has been done other than by us advisers - FMA did promise as far as I can tell we only saw the misguided cowboys ad! Commissions,fees - after my 4th appt with existing clients to "sell" advise on new benefits that they enquired about and discovering a potential claim - 2.5 hours tonight yes tonight to assist them with the claim form and no doubt many more hours chasing the claims department - all unpaid!!!!!! oops unless 4% renewal on a low premium covers these appts - if I did sell the medical cover and IP the upfront commission would be less than charging $$ for all the unpaid appts - think the regulators and media have to get into the real world - how many people work at night, staff to process paperwork, chase companies, help at time of claim and not just filling in forms but counselling and advising - I think a large number of advisers hourly rate would be quite low if we counted all the hours we work!!!! Yes get rid of commissions so clients can pay more in fees to reimburse us for all the hours, education and compliance costs!
On 27 May 2015 at 10:20 am Majella said:
Yes, Fed Up. Couldn't agree more. I am dealing with a client right now who has been prospected by a QFE adviser (out of a large general brokerage company) who has turned over an income policy 14 months old and a life policy 6 months old. The retail premiums for the replacement business on the same terms is actually around 20% HIGHER than they are paying already, but this clown has come in with a discounted premium AND a 'cash-back rebate', in order to appear to be offering a lower cost. The client wonders why I didn't offer this cash-back rebate when they took out the policies....excuse me? this is hardly a common practice aside form Life Direct, a no-advice online service. How this guy (with 30 years 'experience') can discount so deeply is beyond me, and why the QFE allows it is astonishing as well.
On 27 May 2015 at 2:49 pm w k said:
@majella. i thought i was the only one. i lost a case earlier this year to a qfe (one of the big banks). the premium quoted to my client was ridiculously low. i tried on the cheapest quote i could get and adjust to zero commission, it still turn out more expensive.

fine example of "big fish eat small fish".

hi mr goldsmith, is it the intention to wipe out the small fish so that the big fish can eat the small fish food?
On 5 June 2015 at 5:40 pm RiskAdviser said:
Interesting comments from the field again. Interested to hear a clear regulatory response to the paying people to enter into contracts bit that 'cash backs' effectively are.

Under the secret commissions act it's something that is legislated against for agents and principals under the act. Does this extend to individuals? Clearly from an ethics position it's suspect but from a legal point of view?

Given that the recipient is the person procuring the policy/contract and they see it at the time as a suitable inducement. The harm is to be measured later... Question is how does the law (FMA) measure this harm?

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