Associations' stance questioned
New Zealand's adviser associations are being criticised for what is described as an attempt to use the Financial Advisers Act to promote their own position in the industry.
Wednesday, April 20th 2016, 6:00AM 
13 Comments
by Susan Edmunds
Murray Weatherston
Both the Professional Advisers Association (PAA) and the Institute of Financial Advisers (IFA) have argued in their Financial Advisers Act review options paper submissions that industry professional bodies should be given more of a role.
The PAA said one or more associations could have an external compliance role, co-ordinating the provision of training and continuing professional development (CPD), co-ordinating external compliance assurance and delivering a review service, and raising consumer awareness.
The IFA suggests licensing appropriate professional bodies to provide best practice guidance templates, consult on competency level requirements, enable career pathways and conduct peer reviews of advisers' processes.
In return, their members would receive reduced compliance costs.
"We are not suggesting that membership of professional bodies be compulsory but we do consider they should have a role in monitoring," the IFA said.
"Ideally we see professional bodies having a more crucial role in the practical guidance, ethical accountability and discipline of financial advisers. However we acknowledge this would not be practical with the number of bodies that exist today and the without demonstration of competence. While both lawyers and accountants have these structures, financial advisers [need] to evolve as a profession before this can be attempted."
Murray Weatherston, of SiFA, said the arguments seemed self-serving.
"I feel some of the professional bodies are trying to use the review to improve their own importance."
He said AFAs already had a professional body looking after them. "It's called the FMA. That handles for AFAs what the law society handles for lawyers and the chartered accountants' group handles for accountants."
But Dodds said something was needed to build trust in the profession.
He said professional bodies could help boost adviser responsibility, add trust and integrity through members attaining and maintaining competence.
"Self regulation would be some way off in my opinion but if we can show that we can effectively self regulate in some key areas the regulators may give us more breathing space."
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Comments from our readers
On 20 April 2016 at 11:08 am Brent Sheather said:
Desperate stuff from the IFA and sensible comment from Murray Weatherston – the FMA is not perfect but it is light years ahead of self regulation. My view is that IFA members have done enough as regards “building trust in the profession” and given their historic input they should never have a role in regulation or determining best practice. Indeed because best practice invariably conflicts with short term profitability - think ETFs (good) and finance company debentures (bad) - no advisor groups should be involved in determining best practice especially those which provide courses on maximising sales masquerading as CPD. On 20 April 2016 at 2:57 pm Andrew Gunn said:
Last year Philippa Foster-Back OBE, CE of the Institute of Business Ethics, presented to the IFA-PAA National Advisers Conference in July.
In her hour presentation she referred to a very interesting 2014 research piece from the Centre for Financial Innovation (CSFI), I quote
“A professional body brings important benefits, both to the individual concerned and to the public interest. Faced with an ethical dilemma, members are expected to place the values of their profession above any contrary pressure from their employer. Their training is intended to give them more than just technical competence: it should also give them an understanding of the broader purpose of their activities.” Introduction Sir Richard Lambert
The FMA is NZ’s regulator of financial markets (including advisers), a government agency, and surely not to be mistaken for a professional body.
Profession bodies at the heart of it must provide the “three pillars” of a profession, as Lord Benson (1992) lists:
i) ensures that training and education continue throughout a member’s professional life,
ii) sets ethical rules and standards designed for public benefit, higher than those established by the general law; and
iii) takes disciplinary action against transgressors.
One also ought to note, NZ’s situation is not by any means unique. Professional Adviser bodies around the globe, such as the IFA, belong to an international standard setting authority - the Financial Standards Planning Board (FPSB). This international organisation entrusts and licences local jurisdictions to enforce global standards and professional certifications.
It is hardly a stretch that a submission to MBIE that such a NZ body, like the IFA, might be considered to have professional expertise, processes and standards that support the profession and promote the public confidence in financial advice.
That’s hardly 'self-serving', but rather recognises the role and global contribution it is already playing.
On 20 April 2016 at 4:10 pm Brent Sheather said:
Andrew, you need to get a copy of Gareth Morgan’s book “After the Panic”, go to chapter 9 which deals with the IFA members, read it yourself then give it to Philippa Foster-Back, OBE, whatever. Then apologise to Good Returns readers for making such ridiculous comments.
Regards
Brent Sheather
On 20 April 2016 at 4:14 pm Brent Sheather said:
By the way it might have been appropriate to disclose that you are the Manager for Member Learning and Development of the IFA. On 21 April 2016 at 10:45 am Stephen O'Connor said:
Having read the IFA submission, it is neither self serving or desperate.
As for Murray's suggestion that the FMA is a professional body, I can only surmise that it is so long since he has belonged to one that he has forgotten what they look like. I suggest you also read the Law Society's submission, but then I suppose you will call that self serving as well.
On 21 April 2016 at 6:46 pm Murray Weatherston said:
I am not going to stoop to the level of pointing out that SOC is a former Chair of the IFA. Also as a (founding) member of SIFA since 1994,
I object to the assertion that SIFA is not a Professional body.
I think some of my point is lost in the brevity of my remarks referenced and directly quoted above.
People are obviously upset that there is a suggestion that the FMA is a professional body. I would note that particular statement is not in quotes. And the bit quoted next I think should have said “FMA, Code and FADC” rather than just” FMA” (sorry Susan) which might have made my view clearer.
I didn’t initially raise this matter as the sense was approximately correct, but now that I have been attacked on the specific words, an explanation is required to prevent any more ad hominem remarks
To me, the reality of the current regulatory framework is that through the FAA, the Code written under the Act, the FMA and the FADC, the Government provides for advisers a lot of the things the Law Society provides for the legal profession and the Accountants bodies (I can’t be more specific because I forget their current names) provide for accountants.
I recognise that professional associations such as IFA, PAA, SIFA SIA et al (henceforth collectively the “acronyms”) can all provide useful services for their respective members, but there is no real need for any of the acronyms to worry about Codes of Practice, Ethics, Education requirements, Guidance Notes and Discipline because the State already provides for them through the structure I have described above.
In this context, the professional bodies are effectively reduced to being service providers to their members, much like the plethora of compliance-assisting bodies that have been spawned since 2008.
The acronyms are able to provide CPD opportunities for example. But frankly I don’t see the need for parallel Codes of Ethics, practice Standards, education requirements or disciplinary procedures.
What I have been raising and objecting to is the theme I have sensed in some of the acronyms’ submissions to the FAA Review that Regulations in some areas should be enhanced and that the acronyms should be given some formal regulatory role in that enhanced regulation.
I could argue that there should be a COI disclosure accompanying such submissions, but I won’t.
On 23 April 2016 at 1:32 pm Murray Weatherston said:
If anyone is having difficulty in understanding the reason why I conclude the FAA, FMA, Code and FADC structure acts like a professional body, let me explain.
Andrew Gunn quotes Lord Benson’s three pillars of a professional body – let’s examine these pillars one by one.
• ensures that training and education continue throughout a member’s professional life,
The Code requires both a minimum educational standard and a minimum amount of CPD measured on a two year rolling basis.
• sets ethical rules and standards designed for public benefit, higher than those established by the general law;
The general law is the common law like contract and torts. The adviser’s common law duty can perhaps be summarised in the duty to use the “care skill and diligence” of the ordinary adviser.
FAA is specific law, which codifies in statute the care still and diligence obligation, and provides for the Code of Practice. The Code sets out ethical rules and standards of practice, and the FMA’s Guidance Notes are intended to flesh out the Code
• takes disciplinary action against transgressors
The FMA lays charges against transgressors in disciplinary matters and the charges are heard in the FADC.
IMHO, that’s QED.
On 27 April 2016 at 3:45 pm Comprehensive Planner said:
It's been quite a while since I have read such professionally self-destructive comments and by most that should know better.
Murray you hit the nail on the head when you clearly articulated the fact that the FMA administers requirements that are a MINIMUM standard, I suggest not a professional standard as at least one of the "acronyms" have been trying to bring in for many years. Yes, I’m biased as a recently past president of the IFA but it is my view either way.
I feel it is clear that one of the reasons we have had this legislation foisted upon us for the past 8 years is the perceived lack of a clear united leader in the Professional Body space and this is why we don't have the originally proposed APB's, have been left with QFE's, AFA's and RFA's and as a result necessitating this current review.
Andrew Gunn has set out a clear sense of what a professional should do and how they should act and I’m sorry to hear comments such as Brents’ that he should read an out of date book written by an out of date industry player.
While Brent, Murray and many others continue to present our profession in such a negative light we will struggle to gain or maintain consumer confidence of any sort.
The Accountants and Lawyers bodies effectively have a co-regulatory model and in my view this is the mark of a profession not the rantings and ravings of a disgruntled few causing harm to the rest of us.
On 28 April 2016 at 10:01 am Brent Sheather said:
Hi Comprehensive Planner
I’m not so sure that the IFA is doing much to ensure our industry looks professional.
Re the upcoming conference: I have had a look at what is available at the conference and it seems that around 50% of the sessions are on non CPD related matters, unless you are a life coach. There is an “hour on life: the work addiction”, an “hour on self: happy habits for success”, an “hour on relationships: together towards tomorrow” and of course the obligatory sessions on how to build your business. It is a huge indictment of the Code Committee that these courses could qualify for CPD. Let’s be honest they are more appropriate for life coaches or Ministers of religion of some dodgy church.
The health sector contains a number of professions which are held in high regard by the public. A friend who works in the health sector is going to a conference shortly and 90% of the topics are actually work related. Funny that.
Now let’s move on to the “sponsors”. The fact that the conference is sponsored speaks volumes about the independence, or lack thereof, of the IFA and its members. Furthermore we can discern the relevance of this conference by looking at whose not there. Despite the fact that best practice is to have a 50% weighting in passive products, there is no involvement either by way of sponsorship or presentations from the passive providers. Maybe it is because they don’t pay commissions and help clients to focus on what’s important i.e. the level of fees.
One of the few sessions that actually looks relevant is jointly presented by a financial advisor who three or four years ago went on record as saying he “wasn’t buying long dated bonds for clients because he thought interest rates were too low”. How did that work out I wonder? The advisor will be giving his insights on modern trends and financial planning however he is on record again as saying “passive funds are just for people who don’t know which active funds to buy”. Hello, the trend is for more indexing not less and given that the NZ Super Fund, for example, with all its resources indexes 98% of its global equity portfolio, completely at variance with best practice. More evidence that the IFA continues to ignore best practice and until it does so neither it nor its members will be considered to be professional.
On 29 April 2016 at 5:23 am Murray Weatherston said:
Breaking news
Gospel of Comprehensive Planner discovered revealing “IFA is the way, the truth and the life, and no adviser shall become a professional other than through IFA”.
With that attempt at satire out of the way, let me turn to the main purpose of this comment – to debunk Comprehensive Planner’s notion that the reason that the co-regulatory model was scrapped in 2008 because there was not a single professional body [see his 3rd paragraph above.]
I have obtained some documents under the OIA that make complete nonsense of that urban myth.
The Cabinet paper of July 2008 that sanctioned the change in direction of the Financial Advisers Bill said that there were four considerations that led to the scrapping of the co-regulatory model in favour of the Securities Commission as the single regulator
1. The fundamental reason was that there was concern that some of the potential APBs would not be able to put in place an acceptable disciplinary process and that Sec Com would need to provide the backstop. [Interestingly the topic was presented that some would-be APB’s were concerned that other would-be APB’s were not up to scratch with disciplinary procedures – I wonder who was in which camp?]
2. There was concern that there would not be APBs covering all advisers who were caught under the Bill, and that those advisers would be prevented from undertaking legitimate business
3. There was concern that there could be differences between the standards imposed by different APBs and that Sec Com would be required to put in place minimum standards which each APB would need to meet.
4. Lastly there were concerns that APBs would protect the interests of existing firms and therefore create barriers to the entry of new participants.
These are equity, efficiency and competition arguments – not the lack of a single professional body.
On 29 April 2016 at 2:53 pm Andrew Gunn said:
Murray makes many valid points – but isn’t the argument is getting overly polarised? Isn’t there a future ‘middle way’?
The FMA and FADC are not going away, but we all know how under-resourced the FMA is, with its wide brief to check on the entire market and adviser space. However, from a risk-mitigation perspective alone, future legislation could recognise the place of Professional Bodies (that importantly, meet strict FMA criteria) and hand back to them some of the regulation of their own members.
The outcomes, I argue, ought to be higher consumer confidence in the advisers, best-practice within adviser businesses, and more tailored (and collaborative) FMA guidance notes with lower compliance costs to both the FMA and members of these bodies.
Nowhere in any submission on the Options Papers, I have read, is the concept of ‘mandated membership’ countenanced – and certainly it’s not the IFA submission.
On 2 May 2016 at 11:07 am susanedmunds said:
From Fred Dodds:
With God having entered the fray we should consider other learning's- starting with Ephesians 4.31/32:
"Let all bitterness and wrath and anger and clamour and slander be put away from you along with all malice. Be kind to one another tender hearted and forging to one another"
And before we have another "panic" attack
Psalm 55 4-8
"Fear and trembling have beset me, horror has overwhelmed me. I would flee far away and stay in the desert"
Goodbye!
Seriously its time all of us - nom de plumes, forthright names etc to start to address the real issue of our profession.
The public do not like us all that much but our clients do!! Isn't it time to take the Church of Good Advice to more people?
I don't care what "Church" ( read Assn ) you belong to - you have a Code of Commandments - go tell the people what you do.
This on-going sniping will only result in the regulator "washing his hands" of us.
Want a cuppa Murray and Brent - let's "sheath and weather" the issues - I will pay 021 998906
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The fact that we have so few complaints been laid against RFAs and AFAs around the country currently indicates that regulation of the financial services industry as it stands today is working.