by Susan Edmunds
The working group developing the code of conduct for financial advisers has delivered its initial proposals.
An early criticism of the group was that it did not include any practising authorised financial advisers to offer an independent point of view on the market.
Financial adviser and former IFA president Nigel Tate said the proposals, including an option to “aggregate” competency across the adviser and provider, seemed to play into product providers’ hands.
Advisers will be able to meet competency requirements – including a level five qualification for product advice or a degree-level standard for planning – without having those qualifications if the processes of their financial advice provider mean their advice is up to that standard.
Tate said he did not support that idea.
“I think that’s come out of the vertically integrated organisations that are trying not to have to fund the education of their practitioners, where they can use non-qualified practitioners to market their products.”
He said it was not a surprise given the make-up of the code working group.
“It’s a result of MBIE refusing to appoint an existing practitioner to the code working group they didn’t get that point of view. What they give us is the product provider view of how they can ideally distribute the greatest amount of product.”
The NZ Bankers Association said it was not able to comment.
Working group chairman Angus Dale-Jones said the idea of aggregation was designed to work in situations such as the current QFE model. He said it would not suit smaller businesses unless they had a "super computer".
But he said it was not a "get out of jail free" card. It would come with significant cost via the compliance burden.
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I encourage every RFA and every consumer advocate to get to grips with what this discussion is all about.
Let’s start with the legislation as CWG have assumed it will be amended in select committee. The word investment s proposed to be replaced by the word financial. I have showed the 3 places by using square brackets.
431C Meaning of financial advice and regulated financial advice
(1) A person gives financial advice if the person—
(a) makes a recommendation or gives an opinion about acquiring or disposing
of (or not acquiring or disposing of) a financial advice product; or
(b) designs [a financial] plan for a person that—
(i) purports to be based on—
(A) an analysis of the person’s current and future overall financial
situation (including [financial] needs); and
(B) the identification of the person’s [financial] goals; and
(ii) includes 1 or more recommendations or opinions on how to realise 1 or more of those goals.
It’s unfortunate that terms are used in a way that is different to the way they are normally used. Financial planning in the context of what CWG is talking about is much wider (catches a lot more advisers) than what Nigel and his colleagues at IBCFP would mean by the term financial planning.
It’s easy to see where CWG got its terms product advice and financial planning in its CD. Product advice is clearly par (a) and financial planning is par (b).
It is important to recognise that (a) and (b) are not mutually exclusive categories. CWG Chair confirmed that at the Auckland consultation meeting I attended i.e. an adviser – a client interaction can be both at the same time.
My explicit assumption is that if an interaction is both product advice and financial planning, the higher standards of financial planning apply
If we start with (b) financial planning, it is clear that as soon as the advice-giver takes the clients situation, needs and goals into account, and makes a recommendation or opinion on how to realise at least one of those goals, then the advice giver has jumped the financial planning hurdle which triggers higher standard of compliance – degree and Level 6.
So the normal life insurance adviser who sits with her client and does a needs analysis and makes a recommendation based on that needs analysis prima facie crosses the line.
That’s why I think all RFAs should be vitally interested in this consultation.
So what isn’t financial planning? Execution only (where the client initiates what is bought or sold and the adviser only executes the transaction) and information only are excluded from the definition of advice. So these cant be product advice.
I can’t help coming to the conclusion that the main and perhaps the only thing that can logically fall into the “product advice” category is a pure sale. The seller doesn’t look into the client’s circumstances, doesn’t look into the customers’ needs and goals, and therefore can’t tie a recommendation or opinion into a goal.
That has to be a sale. If it looks like a duck, walks like a duck and squawks like a duck, it surely is a duck.
The VIOs and their high powered lawyers submitting on their behalf must be congratulated for convincing so far MBIE the CWG and probably in time also the Select Committee that a sale is not a sale, it is product advice.
I would have thought consumer organisations would be a tad agitated by this debate. Is it in their consumers’ interests to be legislatively encouraged to view that something that is a naked sales process is actually advice. That is surely financial illiteracy personified.
There are couple of corollaries of my analysis. Advisers might be tempted to dumb down to become product advisers (salespeople) rather than financial planners (genuine advisers); or to jump from self employment into serfdom at a VIO.
How do these outcomes meet either of the aims of increasing the availability of advice or improving the quality of advice.
MBIE have gone into a “cone of silence” because of their role as adviser to the Select Committee. So The focus of our attempts to get sense restored to this debate have to be aimed squarely at the Code Working Group.