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When is advice not advice? The curious rise of no-advice sales

Russell Hutchinson gives some advice when no-advice may be given

Monday, February 16th 2015, 6:13AM 3 Comments

Imagine you are a client of a major institution and a helpful customer service person asks you if you would like to consider their product – KiwiSaver or insurance, for example.

You glance quickly at your watch but realise there is actually half an hour to spare before you meet your partner and you can spend it here in the cool air-conditioning or outside window shopping.

You agree.

“Really?” says the person “Great… I’ll get you to step through this door and meet our financial adviser.” On entry a pleasant person greets you with a business card, and a disclosure document, explaining that they are a financial adviser, within a QFE.

You discuss the insurance product. You look at the policy document. You get a quote for cover and it is lower than your current provider – it is handy being able to check your premium by looking up the last deduction in your account statement. You decide to buy, and you cancel the direct debit for your current cover.

You might be forgiven for thinking that you just received advice. But the chances are that you didn’t. Technically this was a no advice sale.

It may have been detailed as such in a declaration on one of the pieces of paper you signed.

It is not just a feature of QFEs either. We can equally describe a situation where a client starts out having a personalised advice consultation with a registered financial adviser about home loan selection. At some point in the meeting the adviser may cheerfully say ‘that wraps it up for the home loan, may I ask who your KiwiSaver is with?’ What follows may be a no-advice sale.

Once again it may be detailed as such in a declaration for the client to sign, but the context can have a powerful influence on whether the client really understands what is happening.

There is a risk that without a clear statement of “no advice” the client feels that they are receiving advice – they asked questions, and although those questions were all answered the client does not know that they are simply being given factual answers. The client does not know what an ‘advice process’ looks or feels like. So they don’t know when they aren’t getting one.

In the UK the Financial Conduct Authority (which has a role similar to our FMA) says that more no-advice sales are made by financial advisers than advised sales. Isn’t that strange?

If you offer a genuine personalised advice process I recommend you highlight that to your clients and explain that even though they may shop around and talk to other financial advisers, they may not always be talking to them about getting advice.

« Who should worry about the FMA's focus on churn?Watch out for the newly promoted income protection client »

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Comments from our readers

On 16 February 2015 at 9:21 am impartial_observer said:
You might not have received advice on the new product, but when the QFE adviser suggests you cancel the DD on your current cover, they are giving an opinion in relation to disposing of a financial product. Sect 10 (1) FAA 2008.
On 16 February 2015 at 12:45 pm gavin austin adviser business compliance said:
I am sure the adviser would rightly claim that they were not giving advice under section 10(1) FAA 2008 as the cancellation of the DD would come under sec 1(3)- so they would be still able to claim a "no advice" sale.There is far too much of this "no advice" going on and the principle beneficiaries are the QFEs and the Product Providers. In the first example that Russell uses where the life poduct is cheaper FMA have already warned that this alone is not a valid reason for replacing business. The only thing that needs to happen now is some in depth audits by FMA of QFEs and Product Providers to root out the problem of "Churning" on price. I won't hold my breath waiting for that to happen.
On 18 February 2015 at 10:46 am impartial_observer said:
The devil is in the detail Gavin, I used the words "suggests you cancel the DD"... an adviser lead opinion, not a response to a client saying "how do I cancel my DD" which would be covered by 10(3)(c).

I agree with Russell, there should be a clear written statement of "No Advice" provided to the client in each instance. Ultimately it comes down to what is provided in writing, not what was said, inferred or interpreted in the meeting.

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