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Advisers ask: Is it fair accountants, lawyers outside law?

Advisers are upset exemptions are likely to remain in the Financial Advisers Act (FAA) for professions such as lawyers and accountants who provide advice as part of their businesses.

Tuesday, December 8th 2015, 6:00AM 6 Comments

by Susan Edmunds

AFAs must be authorised to offer personalised advice but people in these roles can do so without falling under the scope of the FAA.

The Ministry of Business, Innovation and Employment (MBIE) said the theory was they were already subject to regulatory oversight in their own fields.

Concerns were raised about the fairness of the exemptions in submissions to the FAA review issues paper.

The Institute of Financial Advisers (IFA) said it could see no reason why an accountant or lawyer who went beyond “discuss and consider” situations and made specific recommendations about an investment portfolio or insurances should not be subject to AFAs' requirements.

“All advisers should be held the same standard, irrespective of profession, if some advisers are excluded due to advice incidental to their role this should go both ways or it is unfair, therefore it is impractical to have exclusion. If any advisers, who a client would be reasonable to consider trustworthy, gives advice outside of their area of competence that steps over the boundary of information into suitability they should face a punishment irrespective of profession," it said in its submission.

It also argued that investment property, and advice offered on it by real estate agents, should not be exempt from the FAA.

“There are numerous examples of organisations promoting residential property investment along with real estate agents, property development companies, all offering 'investments' to sell their properties with no evidence of competence to provide that advice.”

IFA president Fred Dodds said the options paper made it clear that MBIE was worried consumers were receiving advice from people without adequate skills or knowledge. “It is disappointing that no reference seems to have been made on the exemptions - particularly the property investment area. In Auckland it’s been fantastic buying in property for the last few years but it’s not always like that. People need to realise it can be volatile.”

He said he was sure it would be raised at upcoming meetings and workshops.

Adviser Murray Weatherston has argued against the exemptions.

But he said he was not surprised that they were set to say. “It's the power of the law and accountants' societies.”

MBIE said it did not have any evidence of consumer harm as a result of the exemptions.

Tags: financial advisers Financial Advisers Act

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Comments from our readers

On 8 December 2015 at 7:13 am Pragmatic said:
If the 'rule-makers' looked at the industry through the lens of the consumer, they would quickly see the rationale for a single acronym for anybody who dispenses investment advice - irrespective of whether this is secondary to their 'core' profession, or the underlying investment vehicle
On 8 December 2015 at 9:28 am w k said:
I wonder what the legal & accounting profession will think if FAs are allow to give legal and tax advice. Just saying.
On 8 December 2015 at 1:47 pm traveller said:
I know that the rules have changed in recent years but a decade or two ago "investment advice" from lawyers and accountants was pretty grim: trust accounts, contributory mortgages, property syndicates. What is it like today?
On 8 December 2015 at 2:17 pm Sceptical said:
It's worth considering that advisers can give advice about what the law says, they just can't call themselves lawyers (or similar) or a smaller subset of restricted activities (e.g. representing someone in court). Part of the reason that the exemptions are there is that the FA Act is incredibly broad in its scope, as it captures anyone in business who gives an opinion on buying a financial product. In my view, if the scope of the Act was narrowed to protect the financial adviser title and a smaller range of core activities it would remove the need for these types of exemptions.
On 8 December 2015 at 2:27 pm Tash said:
When it comes to life Insurance (as opposed to fire and general, so life, disability and health insurance) the problem is the regulators do not understand the level of specialist knowledge it takes to do the job properly (no lawyer or accountant studies this adequately or at all as part of their qualification for practice - neither do AFAs necessarily by the way!).

Not doing the job properly can cost the client hundreds of thousands, even millions in claims not payable because they don't have the right insurance type or provider.

I do not believe life insurance can be sold - good, compliant advice is always necessary! Specialist advice on the numerous risks and their financial consequences, specialist advice on the mixture of insurance types to properly cover all the gaps and avoid double ups (most employed parents need life cover, income protection, trauma cover, TPD and health insurance in suitable quantities just to avoid underinsurance). The advice on policy type (there are upwards of three types of income protection for goodness sake)and all the options as well as the providers chosen to best provide the solutions, requires an excellent knowledge of many different providers policies (yes... not all providers policies are the same - there are real fish hooks to watch out for, like will your income cover pay if you are unemployed when you get sick?)how these policies work together and when they are appropriate and when not.

Also relevant are the client's occupation and income, their assets and other income sources, their spouse or partner's income, their health (present and historic and that of their parents!) their hobbies and past times.

All of this advice depends entirely on each clients unique circumstances and directly impacts the insurance sum insured, insurance type and provider recommendation. Then there are the numerous underwriting health and financial rules and other knowledge needed to do the job, like when will ACC or WINZ actually come to the party, if at all. Then there is properly understanding which premium structure best suits the client (and how much this will cost them now and over the likely life of their policy), how to fill out an application so that they comply with their duty of disclosure (and avoid claims declined for non-disclosure)and on it goes...

No life insurance can be sold without compliant personalised advice and no one advising on it should be exempt from competence.
On 8 December 2015 at 3:02 pm MPT Heretic said:
I am not sure MBIE have looked too hard for evidence of harm. There were plenty of brochures from now defunct property syndicates and finance company debentures adorning the reception areas of many.

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