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Consumers 'deserve clarity'

A new 'financial advice representative' designation is a missed opportunity, the working group developing Financial Advice New Zealand says.

Friday, March 10th 2017, 5:59AM 5 Comments

by Susan Edmunds

The Financial Services Legislation Amendment Bill exposure draft is out for consultation.

It replaces the Financial Advisers Act with provisions in the Financial Markets Conduct Act.

Instead of AFAs, RFAs and QFE advisers, there will be financial advisers, financial advice representatives and financial advice providers.

The Financial Advice New Zealand working group said the public needed more clarity around the difference between sales and advice.

"The proposed FAR designation is a big missed opportunity, for the regulator, for the value of advice and for New Zealanders," it said.

"To increase awareness and understanding, and as a result confidence and access, the public need 'advice' and 'advisers' to stand for something quite distinct from other financial service experiences."

The group said the public needed advice to stand for a highly valuable experience, in which they engaged a qualified and accountable professional who uses their knowledge, expertise and dscretion to help them make an informed choice appropriate to their personal needs and situation.

"An FAR in most cases will not be providing a comprehensive advice experience, and will not be individually accountable for their advice. But with the word ‘advice’ in their title, how is a member of the public to know the potential limitations of the FAR service? How will they be able to differentiate between this and the comprehensive advice service of a Financial Adviser (FA)?

"Disclosure and compliance may very well clarify limitations once a member of the public has sat down for that first meeting; but how do they identify their preferred experience before they choose a person or brand to deal with?"

The group said if the regulation missed the opportunity to provide clarity, the role of Financial Advice New Zealand would be made even more crucial.

"In this changing world of financial services, it is abundantly clear that the adviser community, the public, and ‘advice’, need the clout of a strong, unified voice."

 

Tags: Financial Advice New Zealand financial advisers Financial Advisers Act

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Comments from our readers

On 10 March 2017 at 9:23 am NormanStacey said:
Yes, FAR certainly does seem destined to add to the investing public's confusion as to whether they have 'advice'. More properly 'Financial Product Representative', if product providers do not want to call their Reps sales people.
In the early days, they will all be Trainees anyway, so the 'T' will need to be added to their designations.
On 10 March 2017 at 2:12 pm R1 said:
The notion of a "missed opportunity" is I think naïve at best. This 'review' of regulations is most probably a corruption of our financial system by influential (i.e. moneyed) lobby groups; e.g. the banks and such like. We just need to look across the ditch to the Australian scene to see what our regulator and banks are cooking up for the retail investor here. Isn't is reasonable to assume these are some of our brightest people working in the field who are working on the regulatory review? I hope so. To 'miss an opportunity' is a simply not plausible given the amount of money involved now and even more so into the future. This is a conscious decision to create confusing terms and complex regulation so as to make it virtually impossible to define when dodgy advice has been provided &/or the fees are ridiculous &/or the client's interests have not been put first. Couple that with the level of vertical integration we have and the inherent conflicts of interest there-in and we have a clear recipe to allow what has always happened to continue. Those with most of the knowledge and power will rip-off those with less knowledge and little power and tax-payers will in effect continue to subsidise the profits of the 'foxes' and the retail investors' retirement because they have not got a sufficient return on their savings through poor advice and high fees.

Here is an interesting article by way of example of how bad it is in Australia: https://theconversation.com/hidden-fees-and-the-lowdown-on-macquaries-latest-way-to-make-money-74063?utm_medium=email&utm_campaign=Latest%20from%20The%20Conversation%20for%20March%208%202017%20-%2069165152&utm_content=Latest%20from%20The%20Conversation%20for%20March%208%202017%20-%2069165152+CID_3ff61643a85b37c51873d5de679bd9c0&utm_source=campaign_monitor&utm_term=Australias%20superannuation%20market%20is%20the%20nations%20premier%20gravy%20train%20of%20commissions

Something we can expect to see in NZ as it stands at the moment.
On 11 March 2017 at 8:56 am Fynanz said:
Absolutely agree. There needs to be clear definitions so the average Joe Blogs can be easily informed about the channel they use to purchase financial products before they sit down and are captured by what is often a profit, not advice driven sales system.
On 11 March 2017 at 12:55 pm Murray Weatherston said:
Is this story from Financial Advice Working Group supported by the two main constituents of the working group ie IFA and PAA.
Or is it just a clarion call to advisers to get behind Financial Advice New Zealand/
On 13 March 2017 at 12:18 pm Murray Weatherston said:
In reply to R1.

“ Isn't is reasonable to assume these are some of our brightest people working in the field who are working on the regulatory review?”

Answer: You are joking aren’t you?

At the outset, let me be very clear that I am not making a personal attack on any of the individuals; however I am making a direct attack on the process. I don’t doubt for a moment that the people I am going to talk about are not intelligent.

I can identify up to about 10 people whom we have interacted with in the FAAR policy review team between the start in 4th quarter 2014 and now. Some have moved on – of the 4 people we interacted with at our first meeting with them, only 1 remains. New people have joined including a new team leader once he had finished the FMCA implementation.

I could be wrong, and would welcome any correction, but I don’t think any of the team we have interacted with had any prior experience in the field of financial advice; I could go further out on a limb and say I am not aware of any of them who even had any experience in the field of financial services.

I think this must be the way the whole Government works. And possibly explains why we get so much poor policy.
There seems to be a new body of knowledge that I will call “policy analysis”. To give a totally useless explanation of what it is, it’s what policy analysts in the public service do. And what do policy analysts do – well they do policy analysis.

It seems to me to me that the important aspects of policy analysis are about process, and outcomes are secondary. They assemble a team of people who don’t necessarily have any prior experience in the area, whose first task is to draw up an issues paper. They have a round of consultation which proceeds in a very one-dimensional way. By this, I mean each submitter submits direct to the review team; but there is no marketplace for the submissions of any submitter to be tested openly by other submitters.

The review team takes a very process driven approach using what I would call “ tick box” consulting. By this I mean they identify people and/or groups that might have a view, and go and see each of these. Then in the aggregate, they can then “tick the box” that they have consulted widely.

Our experience has been that they have wanted to know what we thought. But we could never get from them really what either they themselves thought, or what other submitters were saying. We did ask them one day whether the consultation process was a “voting machine” i.e. the outcome would be decided by the numbers or a “weighing machine” where it was the merit that would win through.
I now appreciate that it was unfair to actually ask them to apply a weighing machine as they didn’t have any experience that would tell them the scale of the measurement anyway.

The most telling response to us was that when we did the required one-on-one post review consultation and we congratulated them on having delivered the advice industry 100% to the banks, they were shocked because they actually thought they had been hard on the banks. Yeah right – the only people who would agree with that view would be the banks!
Well as we come to the end of the process, then unless we can get some politicians outside of the Government onside, we’ll get what we’ve now got before us.

We can confidently predict that there will be a number of older experienced advisers across the spectrum of disciplines who will say “it’s all too hard -I am out of here”. The institutions will sell their own products in bucketloads under the legal disguise of advice; the institutions' share of the advice market will rise.

The public will actually have less access to personalised advice than they have now - lot's of consumers will simply be dispensed over-the-counter advice faithfully following prepared scripts.

When our easily predictable outcomes occur, officials will simply write them off as “unintended consequences”. It won't really worry them because they will be off plying their policy analysis skills in some other area.

BTW, if you think I am disillusioned by the whole affair, you are 100% correct.

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