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Independent definition a problem for advisers

Calling financial advisers "independent" is problematic and quite likely impossible as no adviser can confidently keep themselves informed of every possible product available in New Zealand's market.

Wednesday, December 2nd 2009, 7:26AM 7 Comments

Several people questioned the Code Committee's proposal for the default position of Authorised Financial Advisers to be "independent" at its Wellington forum on the ethical behaviour and client care discussion document, calling it unworkable as all advisers favour and know some products over others.

"What independence suggests is that we're all dodgy," said Institute of Financial Advisers past-President Bernard Gresham. "No-one has ever questioned that I take commissions."

Committee member David Ireland pointed out that it is a simple case for advisers to communicate their relationships with providers to clients, and said the committee has "shied away" from an overly prescriptive regime. Still, he accepted there could be problems in the public's interpretation of what an independent adviser was and urged advisers to make submissions on the document.

Much of the Code Committee's proposals on client care had been taken from the IFA's own code, along with the Institute of Chartered Accountants and standards in Australia and England, Ireland said.

Ireland also confirmed that the committee is proposing to let clients waive the requirement for advisers to match products to their needs on an individual need, provided the customer did so on their own initiative.

Advisers in the audience spent a lot of time going over questions around competence and what will be required of them to meet the standards when they come into effect at the end of the next year, and the Securities Commission's director supervision Angus Dale-Jones gave a rough timeframe as to when the regulator wants to have things up and running.

The Securities Commission hopes to have the regulations in place by the end of May next year, giving advisers until some time in December 2010 to meet the requirements.

Dale-Jones also clarified that financial planners, irrespective of whether they are selling category one or two products, will have to be authorised if they want to offer a complete service to their clients.


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Comments from our readers

On 2 December 2009 at 7:44 am Independent Observer said:
By definition, no-one in the financial services industry is "independent"... however, there are some who are "independently owned"
On 2 December 2009 at 1:34 pm Mac said:
"Independent" should be determined as:
1. No institutional ownership of the planning / risk advisory business.
2. No requirement to place any business with any product provider (i.e. no minimum production requirements nor prejudicial arrangements like soft dollars)
3. All recommendations based solely on independent research.

Also, being paid a life insurance commission has nothing to do with being independent if you meet with the above three criteria.
On 3 December 2009 at 7:51 am Wayne Ross said:
Surely a relevant definition of independent advice from a clients perspective is advice free from conflicts of interest and the control, influence, support or aid of others.

The continued focus on product in this debate, and by legislators, misses the point that advice can be given (and paid for) without reference to any product whatsoever.
On 3 December 2009 at 12:00 pm James Sheridan said:
I went to my Dentist yesterday, there where no critical work requirements, yet he recommended several treatments which in his opinion where necessary. Where was his disclosure statement? Did he profit personally from one treatment more than the next. Was the treatment necessary? What happens if it all goes wrong? ......

On 3 December 2009 at 12:44 pm NIgel Tate said:
Mac seems to have a simple view of Independence that I like except I struggle with the term "Independent Research" as we all know the Research companies and in particular Risk product research is slanted toward the personal view and financial relationships of the researcher.

Independence to me means an individual has the capacity and acumen to make an informed decision and recommendation that is free from pressures of any kind other than those emanating from the needs of their client. The basis could be as simple as knowing the range of products in general terms but having specific knowledge of claims processing capabilities and experience of a particular product, even if that product may not be the cheapest at any point in time as we all know they change positions regularly.

Once again if we are placing the needs of the "client first" and we retain that focus throughout our relationship with the client, the rest will take care of itself. It's quite simple really.
On 4 December 2009 at 8:46 am Paul said:
I agree that a simple definition of independence is required however I think the whole discussion about independence is a red herring. Just because an Adviser is independent does not ensure good advice.
On 4 December 2009 at 3:39 pm Graeme Lindsay said:
I am intrigued at Nigel Tate's comments that "as we all know the Research companies and in particular Risk product research is slanted toward the personal view and financial relationships of the researcher."

I have no concern with the first assertion - clearly, when comparing the merits of competing products, the analyst, (I prefer this term to researcher), must have an opinion (or view).

However, his second assertion cannot go unchallenged.

As the only NZ-domiciled analyst of life and health insurance products, I will categorically state that I have no financial relationship with any product provider! I don't own any shares in any insurer. My wife does - she got some AXA shares when they demutualised and they have sat in her bottom drawer since. No insurer has any financial interest in any of my companies. I do not owe any insurer any money nor do we have any obligations as to production with any insurer. Whilst my time is now largely spent between the Strategy Toolbox business and Tresillian, our vineyard/wine business, I still do the odd new life or health insurance case for which I am remunerated by commissions. I do not go to insurer soirees or accept soft dollar payments. I went to a number of insurer conferences during the nineties.

I am unaware of the ownership or financial relationships of the Australian-dimiciled Risk Researcher people, but would be very surprised if they had any tie ups with insurers!

If Nigel has any evidence to the contrary, let him put it up, otherwise, a retraction and apology is probably appropriate!

I have no problem with his comments about our obligation to put the client's needs first.
Commenting is closed



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