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Are all views equal?

How much should consumer feedback drive the review of the Financial Advisers Act?

Wednesday, June 17th 2015, 6:00AM 6 Comments

by Susan Edmunds

That’s the question being asked as MBIE courts consumer opinion.

It has developed a brochure for consumers, explaining adviser regulation and asking for consumers’ views on the industry, what is working and what needs to change.

It asks questions such as whether the consumer understands the differences between the types of adviser and what impact commissions have on their level of trust in their advisers.

That feedback, along with submissions in response to the recently-released issues paper, will inform the options paper that will be delivered to the Commerce Minister.

But Pushpa Wood, director of Massey University’s Fin-Ed Centre, said MBIE had not gone far enough to engage consumers.

She said all the communication that had been issued so far about the review required consumers to have a reasonable degree of financial literacy to engage with it.

It would not connect with the most vulnerable consumers.

“At the moment I’m seeing industry-level feedback. If the consumer voice doesn’t come into that, it will be the industry reforming the industry, financial advisers looking at how we can do our jobs better, but for who? We still need to look into that.”

But adviser and SiFA chairman Robert Oddy said there were risks with relying heavily on consumer engagement.

“The problem for consumers if that they may be unaware of what they don’t know. They may be matching returns with interest rates in the bank. They may not understand very much about their investment options, the limitations and benefits. Asking people who haven’t had a lot of exposure to this area is problematic It’s a bit silly asking people to comment on things they don’t understand, if it’s foreign to them."

Oddy said it was important to find a way to encourage people across a range of sectors to offer their feedback to MBIE on the review.

Then those crafting the upcoming options paper would need to take those on board, he said. 

“The most damaging thing would be if a lot of people provided views only to be ignored.”

IFA chief executive Fred Dodds said it would be important to gauge consumer opinion to determine whether regulation had achieved its stated aim of improving confidence in advisers. But how the questions were asked would be important.

Tags: Financial Advisers Act

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Comments from our readers

On 17 June 2015 at 11:01 am R1 said:
While we continue to have "the foxes running with the hounds" and a regulatory regime that was essentially set up by the industry ("foxes")for the industry ("foxes") retail investors cannot be expected to have any trust in the industry. The current review process, dominated by the industry is doing little to change that perception/reality. If the review was focused on ensuring the small investor gets what they need and is truly in their nest interests, without compromise, then we could expect investors to have more confidence and participate. Is that likely to happen? I think not and I think the industry has no interest in truly helping investors meet their needs. I will not be providing a submission to the MBIE as I do not expect to have any influence over the approach or outcome of the review; simple. It is a shame because this process provides a great opportunity to build trust and confidence with retail investors but the approach is not "investor-centric" it is "industry-centric". In my experience, successful businesses build a business around their clients and we can do that without the regulation but the industry's poor reputation is limiting our ability to be successful by keeping investors away from good, low cost advice.
On 17 June 2015 at 12:43 pm LPL said:
Why should the financial services industry provide low cost advice?
On 18 June 2015 at 8:32 am Pragmatic said:
Consumers aren't as obsessed about price as some industry participants – but they are very interested in value. This requires every industry participant to be very clear about what they provide in exchange for their cost.

It is also worth remembering that the consumer keeps all of us employed (including the Regulator). I’m unsure how the financial services industry is able to exceed consumer expectations (or event match these) when the consumer hasn’t been asked. I would have thought that a useful starting point for this to occur is in forums such as the review of the Financial Advisers Act… just saying…
On 18 June 2015 at 1:45 pm R1 said:
LPL, I suggest you ask your clients that exact question. You could then enlighten us all by sharing the responses. Truth is most of us know why financial advice needs to be low cost AND good value (to pick up on Pragmatic's point - thanks). What I mean by low is low relative to the average return we can expect to provide our clients over the longer term. Having fees which take a significant proportion of the return is not in the client’s best interests, in my opinion.
On 19 June 2015 at 9:58 am LPL said:
R1, there is product manufacturer and there is advice. It is important to separate the two.
Should the costs in a product reflect fair value - I believe so.
Should advisers be required to provide low cost advice - no.

Have you found your doctor, accountant, lawyer, painter, electrician providing low cost services lately?
On 19 June 2015 at 10:58 am R1 said:
What have those professions got to do with investment returns? A silly comparison.

Advisors are required to put their clients' interest first and 'eating' a significant chunk of the returns through high fees is definitely not doing that.

Perhaps if there was an opt-out option for the add-ons many use to justify a higher fee then they could argue otherwise? I still don't think it is ethical when the primary objective is returns to the client consistent with the risk they take; but that is me. Wonder what the FMA thinks?

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