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FSC: All advisers should be equal

The FSC wants RFAs to choose: Operate at the level of AFAs or declare themselves salespeople.

Monday, July 27th 2015, 6:00AM 7 Comments

by Susan Edmunds

Submissions closed last week on the Financial Advisers Act review issues paper.

Among them was one from the FSC, which represents product providers.

It said the current financial adviser regulation is confusing for consumers, who have a different idea of "advice" to that of the legislation.

It said consumers who sought advice did not usually want "financial planning" or "class advice" but to know whether a particular product was right for them. "They want to be able to make easy comparisons of products by features and cost."

The FSC submission says adviser and product categories should be dropped.

Instead, the industry should be split into "advice" and "sales".

Only fully-trained financial advisers operating to AFA-level ethics standards would be allowed to offer a service described as advice. All advice would count as personalised.

Salespeople could then operate for product providers, provided they make it clear to their customers with a warning that they were not surveying all the options in the market before making a recommendation.

Product providers and their distributors would be subject to obligations to ensure the suitability of their product or service and the FMA would licence all advisers, sales people and the materials provided to customers.

The FSC said some competent and ethical advisers had left the industry because of the cost of compliance and some who would have been able to become AFAs had opted not to because of the regulatory burden involved.

There was a need for advice and that was set to grow as KiwiSaver balances increased, the FSC said.

"It would be desirable for New Zealand households to hold a more diversified group of financial assets than at present but there are fewer advisers now available to give such advice."

The FSC said regulation seemed to have lifted the quality of advice and advisers' professionalism but had not resulted in many more people using advisers yet, although there had been an improvement in trust in the sector.

The submission also said the regulation needed to provide for the possibility of more roboadvice.

Tags: financial advisers Financial Advisers Act FSC

« Submissions call for big law changesMassey calls for Act overhaul »

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Comments from our readers

On 27 July 2015 at 9:44 am Dirty Harry said:
I declare myself a Salesman who is fully trained and operating to the ethical standards of an AFA .

I have two Nat Cert L5, and I'm looking at updating to NZ Cert and and adding a third. One day I'll finish Gad Dip too, maybe CFP.

I disclose as an RFA (pathetic, useless compulsory one-page document that only tells clients my address and how to complain), and have a second disclosure statement covering all the stuff an AFA would disclose.

At the IFA conference the MBIE 'policy advisers' seemed genuinely shocked I was not an AFA. The pretty, young things asked why, so I hit them with it:

Clients see no value in it, because;
Clients don't understand the difference, and;
All clients want is someone they trust, and AFA RFA QFE IFA PAA DRS FMA is gibberish nonsense to them which adds no value at all, does not help them figure out who to trust so they simply go by gut feeling, intuition and referrals.

So they can shove the extra cost for me to be AFA. It's bad enough with the cost of DRS and annual "confirmation".

I should have asked them how they got their life insurance and KiwiSaver sorted. It was clear to me that their experience as clients was very limited, their understanding of what advisers do was still forming, and their intent to go and find out was lacking.

Congratulations to the FSC for making this submission. I completely agree that all advice is personal. And I agree that those who are acting as salesmen for providers should 'make it clear to their customers with a warning that they were not surveying all the options in the market before making a recommendation' - a bold recommendation for the FSC to make considering the impact to the QFEs they represent.
On 27 July 2015 at 3:04 pm LNF said:
AFA, RFA, who cares. The public don't
99% of either AFA or RFA make 99% of their income from "Selling" a product
So if you make 99% of your income directly from giving advice and not from sales, then you are an "Adviser" Other than that you sell !!!
On 27 July 2015 at 4:35 pm Tash said:
Again, no distinction between Life Insurance and Investments. This is a huge part of the problem. Life, disability and trauma cover and medical insurance for that matter has to be sold (no one comes knocking to buy)but cannot be sold without advice.

Advice around the client's various risks, and likelihood of incidence, the the financial consequences and the quantum of those risks, the strategies and products required to minimise those risks and their financial consequences and the provider whose products are most appropriate (YES DIFFERENT PROVIDERS PRODUCTS DO DIFFERENT THINGS AND MAY OR MAY NOT PAY AB APPROPRIATE OR ANY BENEFIT WHEN THE CLIENT NEEDS IT).

Multiple products are inevitably necessary, perhaps even from multiple providers (not all providers offer the same products!).

Then there is advice on policy ownership, crafting the most efficient package and closing gaps and avoiding double ups, how having a will or not affects any insurance outcomes and all of this depends on the client's circumstances, their family arrangements, their health their families health, their occupations, their incomes, their assets, how much they are worth and how much they stand to lose, their debts and other obligations, their past times, their residence aspirations and on and on. Insurance cannot and should not be "sold" only!
On 27 July 2015 at 9:54 pm gavin austin adviser business compliance said:
Hi Tash - I have no idea who you are but you sure make a lot of sense. You're absolutely right very few people come knocking on the door of a risk adviser. The phone doesn't ring very often with an insurance purchaser on the end of the line either. Your description of all the intricacies of providing sound useful and effective advice is often overlooked with all the rhetoric about who are advisers and who are not. If you don't consider all the factors that Tash has eluded to then you are not providing much at all. Oh i can hear all the gnashing of teeth and wailing from advisers who say " but he client didn't wan to go into all that". Well maybe the adviser didn't sell his proposition that well when the adviser the appointment was made. There's too much "limited" advice out there and I wonder why. Is it that hard to do the full job? Maybe for some it is. Maybe they are sales people not true advisers. For ALL advisers to be equal they truly have to give "advice" not just pedal product. Thankfully I seem to know and interact with more of the advisers as opposed to product peddlers.
On 28 July 2015 at 10:59 am w k said:
i started in the life & general insurance industry in the early 80s. was told - life insurance is sold and not bought.

it has always been, at least 99.9% of the time. in my over 30 years, i think i only had 1 call (perhaps 2?) asking to purchase life insurance. that's 1 or 2 out of over 1,000 policies sold.

however, i sold far lesser investment products and got more calls for it.

@dirty harry - i'm with you. i've got no problem putting insurance salesman on my biz card. btw, i've got 3 L5 cert and a L7 cert, and considering post grad or masters. and i'm an rfa.
On 28 July 2015 at 2:50 pm AFA Muggins said:
This is an interesting debate. It pretty much highlights the state of financial ‘advice’ here and around the world. The majority of financial advice is actually selling product of one form or another.

When I started in the industry quite a number of years ago, I worked in a brokerage. I got disillusioned with product flogging. I made a decision to give fee based advice.

Yes – actual fees for sitting down and talking about goals, managing cash flows, working time lines towards goal achievement, paying off debt quickly (no - I don’t ‘do’ mortgages just work out best and quickest way to pay them off) and I have a number of face to face meetings each year with clients.

So in this industry, most people who provide funds under management work consider themselves fee based advisers.

If the funds under management (product) are not there, does the adviser get paid? Most people selling, churning, flogging insurance consider themselves advisers.

Yes, I make a SMALL as in VERY small amount of income from funds under management. Most would wonder why we do it – it is not profitable.

Yes, I make some small insurance recommendations each year and take all commission as spread. Again, it is not the primary focus at all, and isn’t really significant.

I would have made a much bigger income staying as a broker. I would make more, much more money focussed on funds under management.

However, I have clients who have no products but still pay fees for meeting with me and working through a plan we prepared and making sure it stays current.

The feedback we get is satisfying. The work is satisfying. But it is a hard road to go down. It is also a hard one to describe to people in this industry as it doesn’t gel with their paradigm.
On 28 July 2015 at 5:49 pm RiskAdviser said:
Tash and Gavin, Thank you!

Sales, yes there is an element in every product or service ever paid for, and some that aren't paid for.

The advice to define a suitable outcome in a fully informed way is what we are really talking about. Yes remuneration models do cloud things but not everyone is motivated by how they are paid, but they do want to get paid, they have bills and families to feed too.

The point is putting a suitable framework around this and then manage/oversea that framework to ensure adherence to the right client outcomes are achieved. Yes you'll still get ratbags, doesn't matter what you do in any industry, you'll always get them.

Specifying how people get paid doesn't always change behaviour, mostly it creates unintended undesirable outcomes, ie lots of good qualified well motivated professionals leaving the industry.

Base education requirements, specialisation/authorisation in current speak, and 'code' requirements for all means we all play on the same field in the same way. How we choose to engage and deliver is how we run our own businesses.

Play by the rules and the regulator doesn't red or yellow card you. Provide valued service and advice, your clients will love you and you'll have a great business.

This is the market at work. Protectionist and colluded, will end up the same way unions did in the '80's

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