Clear as dishwater

Advisers say efforts by the Securities Commission to clear up confusion over the boundary between financial planning and advice have failed to hit the mark.

Tuesday, March 30th 2010, 10:03PM 3 Comments

by Sonia Speedy

Society of Independent Financial Advisers chairman Murray Weatherston describes being "underwhelmed" by the guidance note issued on Monday.

"Certainly for me it doesn't clarify the issue that is in debate at all," he says.

Institute of Financial Advisers (IFA) president Lyn McMorran says she is glad the commission put the guidance out, but also does not think it creates the certainty the industry was looking for. She believes the definition of a financial planning service remains too broad.

But Securities Commission head of supervision Angus Dale-Jones, says it is a common sense approach that lies behind its guidance and stresses the importance of the phrase "nature of the service being provided" used in the legislation.

He adds that advisers uncertain as to whether or not they need to be authorised probably should be, although he says it is not about insisting that everyone gets authorised.  

Weatherston says the key industry concern is around term insurance, a category two product.

"In order to do term insurance properly you need to do a needs analysis and the issue is does that actually constitute a financial planning service or not?" he says.

McMorran says the IFA's view is that everybody should have a good advice process, but that it does not automatically make them a financial planner. She also has questions around where products such as income protection and trauma cover sit.

Dale-Jones says the legislation clearly states that when advice is over a simple product sale that does not spark a broader conversation about the client's financial situation, then the adviser need not be authorised. He gives the example of a client asking to put $100,000 into a term deposit - a category two product.

However, the same client asking for the best way of managing their finances to do "something sensible" with $100,000, is instigating a broader conversation and the nature of the service required is different, he says.

Dale-Jones says: "If they think they're having a broad enough conversation with their client to warrant a conversation about the financial situation, it's precisely those people who we think should be getting authorised."  

He adds that tweaks are made to the definitions of category one and two products as part of the Pre-Implementation Adjustments Bill and advisers should keep an eye on that.

He also stresses the importance of care, diligence and skill in relation to the service being provided and that advisers should be looking seriously at the qualifications they hold. If they are looking at higher level qualifications, it is "probably just as well" for them to become authorised, Dales-Jones says.


Tags: regulation

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Comments from our readers

On 31 March 2010 at 7:20 pm Bernie Cook said:
Lumping mortgage brokers into the same category as people selling investment programs is dumb. These two are on opposite sides of the industry. One is arranging loans, the other is arranging investments. How can anyone measure one against the other? The disputes resolution service that everyone is obliged to join is going to create a new gravy train for lawyers. Be afraid,be very afraid.
On 1 April 2010 at 9:48 am Trevor Slater said:
Whilst I do not wish to make comment on the clarification of the term advice I do feel, as an expert in the field of commercial conflict resolution, compelled to respond to Mr Cook’s waring about dispute resolution being a gravy train for lawyers.

Could I suggest that Mr Cook needs to take a closer look at the relevant dispute resolution legislation and the Terms of Reference of the current and proposed Ombudsman schemes. The purpose of such schemes is to provide dispute resolution for scheme participants and their customers in ways alternative to a court. All schemes have a prime focus on resolution as opposed to arbitration and do so via such methods as facilitation, negotiation and conciliation.

More importantly all schemes discouraged legal representation from both the consumer and the scheme participant.

The same situation has existed in Australian for many years and I can say that the other than in exceptional cases legal representation (and associated costs) does not happen.

In fact the current international best practice in the financial field is to embrace complaints and alterative dispute resolution. These processes not only provides a low cost way to resolve customer complaints thus providing improved customer service but it also provides (free) intelligence about how a business is performing which can then be used to improve business operations.

Trevor Slater
Mast. Conf. Res.
On 1 April 2010 at 2:30 pm Kathy Jarrett said:
We have much as a profession to do to help all including Angus Dale-Jones consider the risks of the public being harmed by the simple product sale.
The recent widow with the $100,000 proceeds of her husbands estate went to her bank, the teller selected the best interest rate available, compounded the interest and determined at maturity to arrange reinvestment of both principal and interest, started a KiwiSaver for the 62 year old at $200 a month-job done simple products sold. The financial adviser when family brought widow struggling to manage discovered there was little income, WINZ were providing a reduced widows benefit, yet there was a mortgage with the bank that did the term deposit and KiwiSaver, she could not get an accommodation supplement because of the term deposit. Widow had asked about PIE investments but bank teller said rates were lower and her tax rate meant there was no tax savings. When the bank was asked to stop the investment compounding and pay income quarterly the investment had to be broken and a penalty paid. Widow did not want to complain and accepted the penalty. The category two product seller did no harm?? Yeah right!! and you guessed it true story.
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