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Where are the RFAs?

There’s a common piece of advice that gets handed around to people who write news stories or blogs online: Don’t read the comments. But in this case, especially if you are an RFA you should read them.

Tuesday, March 15th 2016, 5:59AM 14 Comments

by Susan Edmunds

But on sites such as this it’s advice we do well to ignore. The comments section is really valuable to get a sense of what those in the industry feel. 

Usually we have a good idea before we post a story of what will generate comments and what is likely to be met with silence.

So I was interested in the reaction to the story about SiFA’s Financial Advisers Act submission, which asked what harm RFAs were doing to cause them to need to be subjected to a higher level of regulation.

I expected this to be something that would fire up a good response, considering what a hot topic regulation is at the moment.

It seems pretty likely that these registered but not authorised advisers are going to be required to step up their qualifications and meet new disclosure requirements under the new version of the Financial Advisers Act.

It won’t be long before we know what changes are to be introduced and I think it is safe to say that it is RFAs who will be feeling the heat. It does not seem likely that the AFA bar will be lifted much higher at this stage.

It seemed SiFA was the one industry player willing to go in to bat for RFAs, to say that the cost of imposing more regulation might not be worth the outcomes it would provide.

Although there was a small amount of reaction, none of the people who commented on the article were RFAs. There were no rallying cries of support, no “thank goodness someone is speaking up for us”.

Does this mean they do not mind the prospect of being required to meet a new level of regulation? We’ve been talking about it for so long that surely the issue is not a lack of awareness. Maybe it indicates that they have already accepted it as inevitability.

SiFA has stepped up to argue the case against an increasingly regulatory burden – and had, on this site at least, not one word of RFA support.

It makes me wonder what the reaction will be when we finally do know what FAA version two will look like.

Tags: Financial Advisers Act SiFA

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Comments from our readers

On 15 March 2016 at 10:16 am rockyb said:
Not too worried as our practise currently follows most of an AFA's process. The only difference will be if we are required to disclose how much we are paid. On an insurance contract some clients may baulk however I see no reason why I cant also state on my disclosure statement how much it costs to run my business.
On 15 March 2016 at 11:41 am dcwhyte said:
When legislation was first drafted in, it was intended that all financial advisers were to
be qualified.

Last-minute lobbying from the banks injected the concept of QFEs, and Category 2 product recommendations were placed outside the mandatory qualification requirements.

Quite a number of advisers had started the education programme already, but promptly abandoned same when this became voluntary.

In reality, the time for questioning whether advisers should be regulated has long gone.

More important - and contained in the intent of Murray's question - is the consistency of application of the regulations.

In other words, if the criteria for being excluded from regulatory requirements is the 'absence of harm' what evidence of harm does the regulator have for including RFAs, mortgage brokers, and/or F&G brokers?

I don't believe Murray is seeking exemption for this latter group of advisers, but is seeking consistency in the application of the regulations across the board.

In other words, there should be no exemption for lawyers and accountants

Creating special categories and exceptions (particularly in response to sectarian lobbying) does nothing but dilute the integrity of the regulation and alienate those who are required to comply.

No exemptions, no exceptions.
On 15 March 2016 at 12:17 pm Comprehensive Planner said:
I agree with David's comments in relation to the Sifa submission and in fact I would take it further. What evidence is there that without the actions of the many Finance Company directors (mostly Lawyers and Accountants) and Trustee Companies, there was major harm being done to investors to require the current legislation let along the new options.

Sure there would have been several situations where advisers got things wrong as well as several situations where the occasional dishonest adviser took money from clients but these are far in a way a miniscule minority and a long way from the norm. Certainly I suspect there would have been many more Accountants or Lawyers up on charges as opposed to financial advisers as we know them.

Standards of financial advice did need to improve along with processes followed by many advisers and so if nothing else has come from the current legislation and requisite regulations this has been a good thing.

It also seems interesting that there are significant numbers of advisers giving opinion publicly but very little from the QFE's. While on this subject, I agree with Brent Sheather on one part at least and that is that comments should be attributed to the individuals making them, if their view is honest it should be clear who is making it.
On 15 March 2016 at 12:49 pm Murray Weatherston said:
In reply to David

David, you've got one of my views a tad askew.

You are right on my view that there should be no exemption for investments for accountants lawyers and journalists who write advice columns (e.g. Mary Holm in the NZ Herald). If any other investment adviser has to be authorised to give such advice, then the above categories should also have to be authorised. That is the consistency issue. You got that one right.

But you didn't get right my view on whether rbnafas (what everyone else calls RFAs) should have to be authorised. My view on that is staunch that before they get regulated, the officials should be required to show what the harm of the status quo is. [For the policy analysts, that is Regulation 101 - or at least it was when I got my Economics degree in the mid 1970s].

Then officials need to show that Government regulation is the best way to fix that harm, supported by a proper cost-benefit analysis.

A simple example - if use of RFA is confusing consumers, a stroke of the pen would prohibit the use of RFA. Effectively zero cost. No need to make 5000 more advisers seek authorisation at $10K a pop to fix that issue.

I probably confused a humble Scot by asking for consistency from officials and used their statements about accountants et al as a crutch for asking for them showing harm by rbnafas.

David, a fine bottle of single malt would repair the harm done to my reputation by your misrepresentation of my view, (but I will share it with you!)

On 15 March 2016 at 2:37 pm dcwhyte said:
I stand corrected. And I agree that evidence of harm by rbnafas would support the regulatory impost, if indeed there is any, as Comprehensive Planner points out, but I fear that ship has already sailed.

The 'RFA delete' solution proposed is elegant and effective, but I suspect this paragraph in Susan's article will be the likely scenario -

"It seems pretty likely that these registered but not authorised advisers are going to be required to step up their qualifications and meet new disclosure requirements under the new version of the Financial Advisers Act."

Apologies for impugning your fine reputation.

The distress incurred after handing the 6 Nations title to England has been traumatic. I need to drown my sorrows - the malt looks like an even more elegant solution - my shout!
On 16 March 2016 at 11:22 am Murray Weatherston said:
I too am perplexed by the absence of RFAs entering the debate.

Do they not recognise that the lights thundering towards them are on the regulatory train? Are they simply transfixed like possums in the headlights? Have they deliberately put their heads in the sand? Have they not been following the debate and don’t even know where they should put their heads? Or do they really think that additional regulation will be good thing for them all so just “bring it on!”?

If I was an RFA, and knew what I now believe to be true, I would be very afraid.

I want to try and paint a picture to contextualise Susan’s concluding sentence “It makes me wonder what the reaction will be when we finally do know what FAA version two will look like “

So here is my view, not what I think should happen, but rather what I think will be done under the FAA Review to RFAs who are personal or general insurance advisers or mortgage brokers.

1.There will be only one denomination of Financial Adviser. It will probably be a restricted title like Financial Adviser (FA) – to distinguish from AFA and RFA which will drop from the lexicon.

2.FA will encompass a number of disciplines, but they will all have to be treated similarly. AFAs are already in the mix, so my guess is that the AFA rules will also be the standard for those added to the mix.

3.AFAs will automatically become FAs

4.To become an FA, RFAs will have to attain National Certificate or NZ Certificate Level 5 like the current AFAs had to (subject to 5 and 6 below).

5.There will be say 3 years for current RFAs to get qualified or to stop giving advice on personal or general insurance or mortgages (just as happened with AFAs).

6.There will be competency alternatives to some of the National/NZ certificate requirements, but prior experience and training courses will not be enough (just like it wasn’t enough for current AFAs).

7.All FAs (investment insurance and mortgage) will be caught up in AMLCFT as reporting entities , with the need for AML Risk Assessments and Programmes and ID procedures, and 2-yearly audits.

8.All FAs will have to disclose to each client the actual remuneration down to the last $ earned from that client.

9.All FAs will have the ethical obligation to place the client’s interests first (i.e. ahead of the FA’s own interests) .

10. The paperwork to be compliant will increase exponentially.

And this might just be the start of what might prove to be a most frustrating and expensive experience – unless RFAs stand up and make any contrary views known now.

If no RFAs step up to this plate, I might just have to concede that it is me that is out of step and that RFAs really do want to have their regulation increased. If that is the case, then why shouldn’t the new regulation apply immediately?
On 16 March 2016 at 2:14 pm w k said:
hello murray,

i am a rfa and can only speak on my behalf as i am not sure how many rfas are contributing or following this issue. i think i've make my fair share of contribution since simon power days. but have since given up 'cos i have no doubt in my mind, fma/mbie have long make up their mind the track they are taking. all these "consultations, feedback, contributions, etc" is only part of the "process". you may call it politics.

if i may repeat (like a broken down recorder) and i won't say it again, i promised. i suggested the following:
1. a qualification for each category of biz - life & health / fire & general / lending / investments. if an adviser want to practice all four areas, then do all four exams, simple as that.
2. adviser can then put their area of expertise on their biz cards. eg. insurance & health and investments adviser (could be salesman, consultant, expert, etc, it doesn't matter). then everyone will know what this adviser can do. this is pretty much the same as other profession. eg. dr abc, cardiologist / mr def, litigation / mr ghi, audit and m & a.
3. advisers to get a number of hours of continual training from the companies each year. only product and technical sessions count. all those positive thinking ra ra ra type do not count as PD. so, an adviser represents 10 companies, then attend PD from all 10 companies. companies will then issue a certificate for training attended. no certificate - no sale, period. having said that, f & g biz may have to be done a bit differently.
4. all advisers to be individually registered.

i'm not sure how much more complicated the regulators want the system to be. maybe there is no enough job going around, i suspect. ask for the time, they'll tell you how the clock should work. just my thoughts.

i still believe in K.I.S.S.

keep up the good work murray. but i'm not holding my breath.
On 16 March 2016 at 4:24 pm Ron Flood said:
As a Registered, but not authorised Financial Advisor, I have tried to avoid joining this debate. This has been perceived by some as having my head in the sand, or being transfixed like a possum in the headlights.

I am sure that RFA's are very worried about what the future holds. Most will not have completed a Diploma or Level 5 Certificate and will most likely decide not too. This will result in many leaving the industry or seeking a safe haven in a QFE.

In my submission I have expressed the opinion that all advisers should have to achieve a level 5 certificate or pass some form of competency test to remain in the industry. Maybe this is because I already have a Diploma and CLU designation and follow the CLU requirement of placing clients interests first.

From attending the MBIE consultation meetings I have the feeling that Murray is correct in saying we will need to disclose our remuneration. This does not concern me as long as bank staff are also required to declare what benefits they receive from selling insurance.

I look forward to seeing the next consultion paper containing the recommendations to be sent to the Minister. Once this comes out I suggest that RFA's will become more vocal.
On 17 March 2016 at 12:30 pm Robert Oddy said:
I fear that waiting until MBIE has reported its findings to the Minister will be far too late to alter the consequence of remaining silent. Our latest submissions are at!news/c18va
Robert Oddy
On 17 March 2016 at 2:41 pm Allistar Walker said:
I confess as an RFA, to not making any waves. I have Level 5 but am not involved in Investment work (only mortgages and insurances) as I could foresee the day the regulators would want to make a mess of the industry at some time in the future.

It is the way the pendulum has swung for centuries. Also, those who have always been on salaries seem to have issues with those on reward for effort commissions.

The thought that by limiting commissions on life insurance to $1500 is evidence of regulator ignorance. It will hand insurance to the banks and do very little to bring down pricing. I possibly wouldn't object if there was a ceiling on the percentage of commission payable, which I believe is a more practical solution if indeed it needs fixing.

I don't sell a product for the commission it brings in, but sell as being the most suited for the particular client - hand on heart. A fuller disclosure is an academic exercise in waste of time and resource - who reads them? Certainly they can be used as part of a marketing strategy. FA is a much better designation, but what is wrong with Insurance Adviser or Mortgage Broker/Adviser for those with the lesser qualifications.

Many so-called AFAs don't have a clue when it comes to mortgages and investment property, which should all be a part of the independent advice process, rather than flogging Managed Funds because that is all they understand and derive a living from.

Personally, I have never been comfortable with the term 'Financial Adviser,' as I see it as being multi-disciplined and should encompass Accounting, Legal, Investment, Insurance, and Lending.

No qualification is going to enhance one's ethics and at the end of the day, people continue to deal with an Adviser/Broker because they trust the advice and integrity of the individual they deal with. Mind you so did those who got into Ponzi schemes - run by Accountants and Solicitors.
On 18 March 2016 at 10:43 am said:
David - I too am an RFA. Early on in the whole fiasco I frequently commented on the perils of the course of action. All I could see was an over-burdensome system that far outweighed any benefit to the people we advise. Like other commenters, my opinions were ignored and the mighty wheels of bureaucracy rode right over commonsense. The real needs of the clients were totally ignored, and indeed - the losses are still occurring through the same issues - lack of education.

Although only a lowly RFA, I have a degree and am far more qualified in the aspects that directly involve my clients, yet these qualifications are not recognised by the FMA or MBIE. However my clients have benefited daily from my extra education.

Now, some years later, our predictions have come 100% true. So the point in our earlier comments was...???

I certainly agree that we should have a qualification relevant to the advice we give. But I will underline the words - "relevant to the advice we give", rather than be suitably qualified to regurgitate the current legislation and legal requirements.

Let's get away from covering our own arses, and instead let's focus on protecting our clients. If we can do that, then we won't need the current legislation to protect us.

And Allistar - I totally agree with you: No qualification is going to enhance one's ethics...
On 18 March 2016 at 3:45 pm w k said:
i fully agree that qualification is not fool proof. unscrupulous practitioners happen in every profession. qualification is only the entry point. annual or bi-annual renewal registration could add as a check point? and let's say when renewing our licence, we need two referees? just my thoughts.
On 18 March 2016 at 3:53 pm w k said:
to add: two referees must be practicing advisers.
On 22 March 2016 at 4:56 pm Giles Thorman said:
I have been in this Industry since 1983 both in the UK and in NZ. I have seen more than my share of crooks in the Industry and most of them were well qualified.

The real damage done in this Industry is not ignorance by the Broker but rather someone setting out to line their pockets at someone else's expense.
I am an RFA and my becoming an AFA or FA or whatever designation I am required is not going to start me putting my clients interests before mine; I have always done so for the last 20 years or more. I have always looked after clients at claim time throughout the whole process.

I would dearly like to know where this supposed groundswell of Public Opprobrium with the terms AFA or RFA came from, and how the general Public supposedly could understand one but not the other.

It will as far as I am concerned be some additional expense and no doubt some additional time for no gain to myself or my clients, but a lot of Politicians and bureaucrats patting themselves on the back at a "Job well Done".

Only a Scotsman could come out with: "the distress incurred having handed the 6 Nations title to England"..... I think you will find they managed to win the Title and the Grand Slam all on their own; perhaps with some help from an Australian!

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