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Massey calls for Act overhaul

Industry regulations are cumbersome and reduce the number of advisers operating in the New Zealand market, a group of Massey University academics say.

Thursday, July 30th 2015, 6:00AM 3 Comments

by Susan Edmunds

Claire Matthews, Michael Naylor and Janine Scott have made a submission in response to the Financial Advisers Act review issues paper.

They say adviser professionalism is the most important aspect for the Act to address.

"True professions are marked by high education standards and clear ethical guidelines, which are embedded in behaviour, so outside control can be minimised. For financial advice to be viewed as a profession, regulatory policies should aim to set the same rules of conduct for all who hold the title of ‘adviser'."

They want adviser designations overhauled: AFAs could be renamed with a term such as professional financial adviser, qualified financial adviser,  or use of the word “chartered”. “The objective should be to convey an image of professionalism.”

RFAs could be better described as "restricted advisers", they say, and if an adviser is not able to deal with at least half the products in the market, they should not be allowed to say a product is "best" for their client.

The Massey submission argues the Act should aim to cut adviser costs and encourage more entrants into the industry. Advisers also needed more guidance around how much advice they had to give.

"The industry is currently feeling uncertainty in terms of how much advice can be scaled so they feel that they have to give full advice or nothing. This means that they are unwilling to offer advice to non-wealthy clients (85% of the population) even if it is generic advice. This is increasing cost and reducing advice cover.”

The Massey submission supported a change to insurance commission structures similar to Australia’s move to lower upfront commission. But Matthews, Naylor and Scott said there needed to be an understanding that adviser costs were higher in New Zealand, and commission likely still had a place because of Kiwis’ reluctance to engage on topics such as life insurance.

They want higher education standards for financial advisers, including a level seven qualification for authorised advisers.

“One of the major issues with the current AFA education requirements is that it is tending to lead to a vastly lower levels skill in the industry than was the case pre-regulation. Prior to the Code, financial advisers seeking to follow global trends as well further distinguish themselves as professionals were aiming to obtain a Level 7 qualification ... The need to obtain Level 5 before obtaining the AFA designation discourages new entrants from continuing on to the Level 7 qualification.”

Overall they said regulation had not struck the right balance between quality standards and encouraging market participation.

“We believe that the quality standards are more cumbersome than necessary. This is discouraging advisers from staying in the field as well as making it difficult to attract new entrants.”

Tags: Financial Advisers Act

« FSC: All advisers should be equalSubmission slams FMA »

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Comments from our readers

On 30 July 2015 at 5:09 pm Tash said:
At the risk of boring those professionals who actually take note and read stuff, I'd again like to point out that the various disciplines, investment advice, retirement planning mortgage broking, Life insurance and F&G insurance are not differing levels of the same skill or education sets THEY ARE COMPLETELY DIFFERENT!

Arguing that all financial advisers should have the same qualifications regulations codes of conduct blah blah is ridiculous. It is also ridiculous to believe Investment advisers (AFAs) have superior knowledge and skills and are somehow more professional than RFAs.

I've met many AFA's who have no clue at all about life insurance - yet they are qualified to give advice on it. Why is no recognition given to the vastly different knowledge and information required to advise on the different disciplines?

It can only be complete ignorance of what each actually involves. To suggest insurance advisers should be called "restricted" advisers makes no sense at all, in the same way that allowing "chartered" advisers open slather on all disciplines simply because they are proficient in one is ridiculous.

One rule is true - "garbage in garbage out".

Let's recognise the different disciplines and base education and regulation around each one's unique requirements. Let's call advisers insurance adviser or investment adviser or mortgage adviser - simple, descriptive and accurate.
On 1 August 2015 at 1:18 pm w k said:
@tash if these "experts" understood or at least willing to listen to us, we will not be having this dialogue in the first place.

why don't these "experts" off their PAYE job and become self-employed - pay rent, hire employees, attend courses/seminars at their own expense and be subject to regulatory compliance. then we talk.
On 2 August 2015 at 10:18 am Broker said:
Completely agree with Tash, unfortunately common sense does not prevail and the last few years have been a complete waste of everyone's time and money...and has the final consumer benefited at all from this mess?...The only people who have benefited are those on the gravy train and those with giant egos who always thought they were better than everyone else anyway (and enjoy skiting that they are AFA's and somehow superior to RFA's) Back to the drawing board ah? How about ask the people at the front line for solutions not the so called academics...

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