The MED discussion document on adviser regulation is a useful start, but a little frustrating.
Why? Well it seems many people wanted a roadmap which they could discuss - rather they have a zillion questions to answer.
The challenge is to isolate the direction this thing is going and decide how different it is from the task force recommendations.
What has caught my interest is this theme from the associations that they don't like the idea of different tiers of advisers (Information only/execution, Product marketer, High level intermediary).
They see it as a threat to their existence.
Well let me say, I argued at the taskforce stage that this was an issue as there could be "boundary creep" (ie: advisers could get themselves classified into less onerous catergories).
No one else said anything. If it was an issue then why didn't we hear about it earlier?
My guess is that some associations see this as a real threat to their membership. Tied agents may be product marketers therefore they won't need to join an Approved Professional Body. Added to this associations are worried big groups (eg: banks) setting up their own APBs. Hence less members for associations.
No wonder they are fighting!
My challenge to the associations is that they need to show value to their membership - in some cases I don't believe that currently exists.
What worries me is that some of the arguments put forward are more in self-interest rather than the best interests of the advisory industry.
I would love to hear your thoughts on this topic. Please email them through to me at Blog@goodreturns.co.nz
Dave McMillan - GM of the PAA responds...
Hi Phil
Firstly congratulations on keeping this subject under debate. In my view the tiered system is the weakest part of the framework outlined in the discussion document. I think we agree on that point but we may disagree on the reasons why. The PAA's concern with the tiered system is primarily focused on the distortions in the distribution landscape that this type of approach is likely to encourage. The discussion paper proposes one of the objectives of the co-regulatory regime is the creation of a competitive market which would presumably provide greater value for consumers. Unfortunately the opposite of this may occur if the three tiered system is implemented.
The tiered system as it currently stands appears to assume that there is no advice component on a product sold in by a sole representative of a supplier. Clearly this is incorrect as advice must still be given, amongst other things regarding type, amount, and period of cover. If implemented the tiered system will allow incompetent advice to be tolerated provided an adviser has a sole relationship with a supplier.
At present we have a competitive market for the distribution of financial services in New Zealand. Most advisers have multiple agencies which means in practice that suppliers have to compete to win the business of an adviser. This is good for consumers because it ensures that products are competitive and under continual development. The tiered system would mean a partial return to the pre-deregulation days of suppliers competing by having 'dedicated' sales forces selling semi competitive products and consumers being limited by choice - hardly a development that would promote greater competition and benefits for consumers.
The proposed tiered system would encourage advisers who did not want to, or could not, pass a competence test to simply have an agency with one supplier and thus avoid the need to comply with most of the proposed regulations. The scope for some advisers to avoid the reach of regulation makes a nonsense of the proposed need for regulation to be introduced in the first place. You can not promote greater confidence in the advice given by advisers when only some of them have to comply with regulations.
As an organisation, the PAA does not see a threat to our membership base due to the proposed regulation. We do however see a threat to advisers if the three tiered system is enacted in its proposed form. I would imagine some suppliers would be rubbing their hands together gleefully at the three tiered structure as it would place a lot more power back in their hands. Our view is that the consumer, and not the supplier should have the power and that this can best be delivered by ensuring that the market is competitive and distortion free.
Also Russell Hutchinson has another view over here
The MED discussion document on adviser regulation is a useful start, but a little frustrating.