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Naylor: Time to rename advisers

There are calls for financial advisers to be given an image overhaul.

Tuesday, September 30th 2014, 6:00AM 20 Comments

by Susan Edmunds

The Financial Advisers Act is due to be reviewed next year and there have been suggestions that the registered financial adviser designation should be dropped.

Massey University school of economics and finance senior lecturer Mike Naylor said there was still a place for RFA advisers.

But he said new terms were needed to describe all advisers.

He said the current AFA, RFA and QFE designations were not easy for the public to understand. “For people in the industry the difference between an AFA and an RFA is clear but not in the minds of the public who have no clue.”

Naylor suggested it was worth considering a system like Britain’s. There, advisers who can only advise on a limited number of products, such as QFE advisers, are called restricted advisers. “Maybe we need something like that, we need one for people who can only give advice on their own products… there’s the impression when an adviser is recommending a product that it is the best in the market but most people are saying this is the best product I can give you and there may be better products out there.”

Naylor said other professions, such as law and accounting,  made it clear which people were the most qualified. “You have a lawyer, a law clerk, a chartered accountant, an accounting clerk. People understand that. We need to have words people understand.”

Most other countries also required a degree as the basic qualification for advisers, he said.

The term to describe RFAs should make it clear that they were qualified to give a lower level of advice, he said. “RFAs should be restricted to easy products… income protection and products like that are as complex, or more complex than a mutual fund.”

He said membership of a professional body should also be required.

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Comments from our readers

On 30 September 2014 at 7:35 am Pragmatic said:
Crazy idea: why don't we simply call anyone who dispenses financial advice an authorized financial advisor (ie: level playing field), with same minimum qualifications required regardless. Any differentiation must be noted / highlighted in their disclosure documents
On 30 September 2014 at 10:02 am Keith Walter said:
Let me preface my comments by saying that these are my personal views and not necessarily the views of any business or organisation I am involved with.

That being understood, I have said from the very start that the designations of AFA, RFA etc were not in the interests of either the profession nor of prospective clients.

They did nothing to distinguish who was capable of doing what.

This came about partially because of trying to use an outdated existing qualification and making everyone fit into the one pattern.

If we are going to take a fresh look at this in light of the review of the Financial Adviser Act then let's at least try to get something sensible which cam be more easily understood by everyone.

My idea, often expressed before, would be to start with the designations and then build the appropriate qualifications around those designations.

A designation such as Qualified Financial Adviser (discipline) would, I believe, be easily understood. By this I mean Qualified Financial Adviser (Investment, KiwiSaver, Life Risks, Mortgages etc)- cross out what doesn't apply.

The actual terms could be played around with but I think you will get the drift of what I am saying.

We should then look to see what qualifications are appropriate to each of the areas and require these to be completed before the adviser can use the appropriate designation.

Advisers who are in the process of gaining the appropriate qualification, while actually going out and doing "the work" would need to have their work signed off by a qualified adviser - and any business would need to be submitted under the qualified advisers name.

Having determined the designations, it should then be a relatively simple matter to determine just what skill-sets and knowledge is required for each area and design appropriate qualifications.

Using Naylor's example of Income Protection, an adviser would need to pass ALL the NEW requirements to be a Financial Adviser (Life Risks)and, without this, could only operate through someone who was qualified. This way, not only would the work have been scrutinised by a qualified adviser, they would be putting their necks on the line for any poor advice.

By taking such an approach, we would not be kicking out good advisers who hadn't yet qualified or possibly, because of their age or other factors decide not to jump through all the hoops to fully qualify. Nor would we be restricting the entry of new people into the profession by requiring full qualification before they even start. I.e. we would not decimate our current adviser-base (which is arguably currently too small)and not put barriers in the way to join but give everyone a very clear understanding of just who is qualified to do what and know that any work has been assessed and signed off by a qualified Adviser who would be answerable to 'authorities' for any poor advice.

Does this sound unreasonable?
On 1 October 2014 at 11:13 am Mike Naylor said:
Pragmatic - the current system of regulation was the product of an excellent, extensive process of consultation.
One conclusion is that there are types of financial advice which clearly require reasonably high level qualifications.
However, it was made clear from feedback during the regulation process, that there are a wide range of advice types which do not need that high level education and support for these would be destroyed by excessive requirements. e.g.; budget advisers, or bank deposits, or HP contracts, or property insurance. Should all these require an AFA?

Keith - good idea to use the name 'Qualified financial adviser ()'. The more difficult issue is what to rename RFA's so it is made clear by the name that they have a lower qual's level? Any suggestions from other advisers?
On 1 October 2014 at 1:18 pm Ron Flood said:
Would it be out there if we had a designation "Insurance Adviser". I know this might be a radical departure from AFA & RFA but at least the public would not be confused.
A large proportion of the RFA community are involved in insurance advice (Category 2 Products) which seems to be where a lot of the comments are aimed at.
You could then look at getting rid of AFA and renaming them "Investment Advisers".
These two designations would remove all confusion for the public. A person qualified as an AFA with Standard Set "E" could then call themselves "Investment & Insurance Adviser".

Any current AFA would have to sit Standard Set "E" before being able to offer insurance advice if they haven't already done so.

With regards education, "the brightest spark in the room may not get to light the fire"(anon).
On 1 October 2014 at 1:57 pm w k said:
@keith: agree, that was suggested to the then minister, simon power.
@m naylor: think outside the box.
my suggestion then was:
1. have qualifications/exams for each of these categories - f&g, l&h, mortgages, investments, etc.& some pre-sales training (for new advisers). existing advisers can be exempted if holding suitable qualifications &/or experience (say, 10 yrs continuous practice, exempt from exams?). want to sell all 4 products, then do all 4 exams.
2. title on biz card - eg. fire & general and life & health adviser (salesman, consultant, specialist, etc) or mortgage adviser ("ditto") or life & health and investment adviser ("ditto").

shouldn't be too difficult for the public to know what the adviser does as compared to afa or rfa. somehow, feedback is/was a waste of time, 'cos regulators don't listen. asking for feedback is merely going through the motion, their mind has already been made up. then when problem arises, feedback said .... blah blah blah ... "false start" .... then we're all back to the starting point again. more fees and money from advisers to cover costs of the process.
On 1 October 2014 at 2:22 pm Pragmatic said:
Thanks Mike. I wonder if the extensive consultation process involved consumers - who still lump all industry components into the same bag, & have difficulty differentiating an AFA from an ABC
On 1 October 2014 at 6:49 pm Carey Church said:
I agree that it is time to start looking at how the labels and designations work, as in my experience, the public have no idea.

Several comments to add to the discussion:
1. Russell Hutchinson wrote an excellent article in the latest Asset magazine providing some tools for us to explain to new clients what an 'adviser' is. I will be adopting these in seminars, as I thought it encapsulated the differences very well.

2. A core issue is the difference between 'advice' and 'product placement/sales.' I believe 95%+ of the public don't have a clue that there is a difference.

3. Any changes need to really highlight the scope of advice able to be given. I think the ideas above are great, but in my case, I consider myself to be a financial planner/adviser, where I advise on ALL the factors. I don't just give Investment advice, or insurance advice. Somehow I would need to be able to explain this in my designation/label.

4. Referring to previous discussions on Good Returns, maybe a designation needs to also be clear if there is a 'tied' distribution - eg QFE's.

5. Surely it is vital that the bank teller switching someones KiwiSaver needs to make it clear that they are NOT providing advice, not qualified to, and that there are possibly better or other alternatives out there?

I have to tell my clients when shifting KiwiSaver that there is a risk because their existing KiwiSaver investments have to be sold by their existing manager, (involving transaction costs), then transferred to their new manager (involving transaction costs), then reinvested, that there is a risk that the market will move dramatically in the time between when the investments are sold and bought (and they are out of the market). Shouldn't everyone or no-one have to tell clients this? Not just AFA's?
On 2 October 2014 at 11:18 am Broker said:
Here's a thought - maybe the public actually gets better quality advice dealing with people who specialise and stick to their knitting - i.e Insurance Advisers, Mortgage Advisers, Investment Advisers/Financial Planners..separate us all out to what we actually give advice on and then re-look at it again. RFA & AFA are just irrelevant titles. Given that regulation came about due to investment advisers recommending finance companies that is where the focus should be - on investment advisers (although the investment advisers were not entirely at fault anyway ah Mr Hanover?). There are no issues with the rest of the market. It wasn't broken so why try to fix it?
On 2 October 2014 at 3:09 pm macca said:
Chartered Financial Planner (CFP/AFA), Chartered Life Insurance Adviser(CLU/AFA), Chartered General Insurance Adviser (FNZIIF/AFA) Authorised Financial Adviser (AFA) and Restricted Financial Adviser (AFA).
No RFAs or QFEs.
On 3 October 2014 at 6:31 pm sMiles said:
I agree with Broker 2 Oct. The key to the naming issue is what does the public think. Prior to the government imposing their generic terms for the whole industry merely for their own convenience, people thought of insurance brokers [life or general], stock-brokers, financial planners, investment advisers, and even forex dealers. There is no obligation to use the term AFA QFE or RFA except in very limited legal circumstances. The whole industry should do what the public recognises or it will take 2o years to try and re-educate the public. AFA is still meaningless to most of the public. The FMA and the FAA and the FMCA do not require anyone to change their descriptions of what they do [as long as it is not misleading]. Put AFA in the fine print and in the Disclosure Statement. It is just an entry ticket and a minimum behaviour set. @macca above, the public are sick of acronyms that mean nothing to them. Please use plain words. I thought financial advisers had to have the interests of their clients as their top priority. That should also apply to this naming issue. Perhaps a few AFAs [used only in this context] would contact a few clients to help enlighten the industry about what clients want. I have made an assumption based purely on my talk with clients and none of them ever mention AFA. Basically they expect the law to do what it is meant to do and beyond that they don't care. Ask your clients but don;t ask your organisations IFA SIFA PAA to waste money on surveys. Ten clients each from a few advisers should do it.
On 6 October 2014 at 11:54 am Keith Walter said:
@Ron - Good idea as it takes my idea a step further by removing "financial" which was always (in my mind at least) a very confusing term. Qualified Investment Adviser, Qualified Insurance Adviser etc tell the public exactly what you are capable of giving advice on and, as per my earlier thought, if you ain't qualified, you don't have anything after your name and all work must be signed off by someone who is.
@Broker - 1) I thought the task force was set up before any problems with Finance Companies. Admittedly that might have changed the focus.
2) Not sure that better advice comes form someone only following 1 discipline. There are advisers out there who do a great job with investment, saving & insurance.
On 7 October 2014 at 12:46 pm macca said:
A qualified accountant is called a "Chartered Accountant" which is understood by the public. So how about "Chartered (e.g. specialisation) Adviser".

All others without a CFP, CLU etc qualification would be an AFA or a restricted adviser.
On 7 October 2014 at 4:13 pm andy@themortgageshop.co.nz said:
WK, and Broker - I agree, let's keep it simple. Though your suggestion may seem too simple for the regulatory boffins up the top. The regulation in its current form has succeeded in better educated advisers, better quality of advice, but has failed dismally in its original intention: to better educate the public in making educated decisions. The public are still more comfortable taking advice from their plumber, bank or neighbour than they are from an AFA or RFA.

I have a degree that serves me better than any of the Code qualifications available to me, but they don't count for anything under the current regime.

In my opinion, this whole regulatory exercise has been a waste of time. If they had listened to the public and the advisers at the beginning, we would have had a far more robust system by now, at less cost.
On 8 October 2014 at 2:36 pm Murray Weatherston said:
I think there is one simple change that could be easily made - that is to ban anyone from calling themself an RFA (or registered financial adviser)

Registration is simply a process whereby we register as a financial services provider - no exams, no qualifications - just fill in the form, tick what services you provide, pay the annual fee and so long as you have no "black marks" voila, you are registered. Whoopee.

But the fact of registration connotes nothing at all really.

On the other hand, AFA is an occupational licence. The Government has decreed that if you have a set qualification (provided it includes Set D - Investments) you can become an AFA which allows you to provide to retail clients financial advice on category 1 products, investment planning services and (for a short time still) a discretionary investment management service.

If you don't work for a QFE, and you don't have an AFA (incl Set D), then you can't give category 1 investment advice etc. Pure and simple.

In the same way that unless you have been admitted to the bar, you can't appear for a client in Court. [Or (inter alia)certify AML/CFT documents.....]

Why it gets murky is most everyone else who is not an AFA (with notable exceptions)wants to call themself an RFA, which could be interpreted as being along the same lines as, but not exactly the same as an AFA.

RFA tells a potential consumer absolutely nothing other than the adviser is registered under the FSPRAct.

These good people can call themselves a mortgage broker, life agent, or fire and general broker for example. This is a true description of their occupation - that is what they do. Since their occupations aren't licensed, they can't be prevented from doing so.

In conclusion, just in case you missed my point, ban the use of RFA.

I might just have a meeting with myself and start a new lobby group - BURFA. [This acronym should be easier than JKR's twitter anagram]
On 9 October 2014 at 12:00 pm btw said:
Well said Murray. This goes to the heart of the issue. RFAs are unlicensed and any attempts to afford them licensed or regulated status are fundamentally at odds with the legislation.
On 9 October 2014 at 3:48 pm Broker said:
This seems to be creating an 'us and them'. From the comments here AFAs seem to want RFAs to go through the extra cost and compliance because they have to (can't think of any other good reason).

RFAs (mortgage/insurance advisers etc) don't advise on investments therefore no need to become an AFA and deal with the extra cost and compliance.

Just revert back to naming us Insurance Advisers, Mortgage Brokers etc and let's get on with life ah? ...o and get rid of RFA's giving 'class advice' on KiwiSaver...that's BS...leave it to the AFAs or banks....
On 9 October 2014 at 3:58 pm gavin austin adviser business compliance said:
Hi Murray

Well put - there is some guidance about the use of the term RFA from FMA but it's not helpful see http://www.fma.govt.nz/help-me-comply/financial-advisers/your-obligations/advertising/#RFA advertising. Inside our profession we do use a lot of acronyms and RFA is just one of those. The general public have no idea what the difference is and neither should they. The FMA was supposed to campaign to raise the awareness of AFA status but we all know what happened to their first and only attempt at that.
On 10 October 2014 at 12:15 pm Murray Weatherston said:
In response to Broker at 3.48pm 9 Oct

You are absolutely correct when you suggest it is a very bad argument that RFAs (I hate that term) should have higher compliance levels because AFAs already have higher compliance.

We should all go back to first principles and ask the basic question "What is the problem".

Once that has been defined, the next question has to be "what are the options for fixing the problem?"

It's only if Government regulation is determined to be the best option that regulation should be implemented.

Even then, the form of that regulation has to be determined; should it be
1. disclosure
2 registration
3. certification
4.
On 10 October 2014 at 12:21 pm Murray Weatherston said:
contd (fat fingers caused the break in transmission)

3.certification
4.task licensing or
5.occupational licensing.

The current regulation of AFAs is a mixture of 1 disclosure 2 registration under the Financial Service Providers Act 4 task licensing -coming for DIMS and 5 Occupational licensing.

God help insurance agents and mortgage brokers etc if they end up with the same mix.

Let's hope that proper assessment of the problem is done first in this case.
On 10 October 2014 at 3:56 pm Barry Read said:
In my opinion the legislation doesn't set adviser naming, it categorises them into registered, authorised and QFE. Advisers can call themselves what the like, within reason.

The issue is actually the categorisation not what advisers call themselves.

I think we would be better off if the categories weren't split by product.

A better way would be to split by Advice Service. for example;

An Authorised Financial Adviser is someone who provides a financial adviser service which is personalised to a retail client. It involves the requirements of the current code but applies to ANY financial product. This person is giving advice in the best interests of the client when making recommendations and is suitably qualified to be giving the advice. The FMA have authorised them to provide this level of Financial Advice Services. (Pretty much as is except that all advisers who provide a personalised service ANY financial products have to be authorised)

A Registered Financial Adviser or QFE adviser are registered and can provide retail clients advice and information on financial products. They must not mislead clients and must show diligence and skill and have knowledge of the products. They could be ANY financial product that they are suitably trained to sell including managed funds and KiwiSaver, but they can't provide a personalised service only class or information only.

The difference is then clear to the client that unless dealing with an AFA you are being offered a product and not personalised advice. The product advice might still be great advice but buyer beware.

I can hear teeth gnashing already so I will go now..

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