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PAA and IFA reveal plans to launch new, unified organisation

The Institute of Financial Advisers and the Professional Advisers Association have told members they plan to create a new organisation: Financial Advice New Zealand

Thursday, June 9th 2016, 8:51AM 19 Comments

Bruce Cortesi

The two organisations said it was not a merger - IFA president Michael Dowling said it was possible that the IFA and PAA could continue to exist, even as a new organisation was launched.

PAA has about 1200 members, and IFA has 730. There are believed to be about 40 to 60 advisers who are members of both.

PAA chairman Bruce Cortesi emailed members saying the new organisation was about "not so much the people or the profession but what we represent – the advice".

"This is a huge opportunity for our industry and one that we think is worth talking about. In the coming weeks we’ll keep you posted on developments and what’s happening."

He said: "Our goal should be to make all New Zealanders financially better off. We should do it by promoting the relevance of advice to all consumers. We should do it through education and informed debate and discussion.

"We should do it by being recognised, trusted and respected. We should do it by having irreproachable values for our members We should do it openly, honestly and with pride and purpose.

"And we should do it by presenting a single, unified face, not for financial advisers – as we do now – but for financial advice."

Cortesi said the two associations had acknowledged there was a better way to promote advisers and advice. He said not enough was being done to communicate the value of advice to consumers, and consumer access to advice.

The new organisation would be better able to promote and endorse advisers, which would help the industry and consumers, he said. 

Dowling said something had to be done to improve the level of financial advice New Zealanders were getting. The new organisation would work to build confidence in the industry as a whole, not just its own members. Members would be seen as trustworthy by consumers, he said. 

"We won’t achieve the needed change simply with words or by continuing to rely on word-of-mouth from the good work done by advisers. We have to take action. We need to substantiate, support and evidence the consumer-centric nature of advice by giving the public a body that unambiguously represents their interests - Financial Advice New Zealand."

The two organisations have been working more closely together over recent times, with a joint conference and other events.

But until now they have rejected speculation that any formal moves were planned. Dowling said it was not a given that such a move would happen, despite the organisations having worked more closely together. "We went in not with the vision of a merger but thinking how we could do it better."

Adviser Simon Hassan said a new group would have more power in discussion with the regulator and with product suppliers. He said it should also be financially stronger. "The organisation should be strong enough to build and grow from here in a way that we haven't seen before."

He said he was not surprised by the move but was not excited by it, either.

He said he wanted to be part of a professional community that shared his focus on fee-based professionalism, put the clients' interests first and was not sales-driven.

"While these ideas will be encapsulated in the new body's stated objectives and so on they are trying to bring a large community of people who are quite diverse together."

Hassan said he would hope that within that group a smaller sub-set of financial planners with CFP qualifications might differentiate themselves.

He has until now been a member of both organisations. 

The PAA and IFA will hold information sessions around the country in the week starting June 20. Each will then hold a special general meeting to allow members to vote on the proposal.

Cortesi said it was not yet possible to say how long it would take to set the organisation up if it were given the green light.

So far, about 90 per cent of adviser feedback had been positive, the pair said. Cortesi said it was an exciting opportunity for advisers to be part of the industry's future. 


Tags: IFA Professional Advisers Associations

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Comments from our readers

On 9 June 2016 at 9:28 am said:
I am so glad we finally got there. This should have happened years ago. Well done to all those who successfully navigated through politics and egos to bring this about. Let's hope the profession gets in behind it to make it a fantastic organisation that makes a difference to the lives of New Zealanders.
On 9 June 2016 at 10:01 am Tony Vidler said:
Congratulations to the leadership of both organisations for finding a way forward. This is a move that I have strongly urged and supported for many years, and one which I believe is necessary for the entire industry.

There will undoubtedly be naysayers, and the usual industry snipers criticising the move. There will also be industry members who struggle to let go of grievances - some real, and some imaginary - from the past. Some members will feel that a larger collective body cannot perhaps represent their specialist positions or views. Many will continue to question the relevance of ANY voluntary membership organisation when it continues to represent only a minority of the advice industry.

But there is nothing new in that.

The advice industry as a whole struggles to articulate its value to consumers, or be rational and professional in how it represents itself frequently. Yet, the value that professional advice can deliver is inter-generational and significant.

The one thing that the advice industry can not ever afford to do is to compete on professional standards. Standards are not points of competitive difference. A standard is simply that: a common position which is set and expected to be adhered to for the benefit of all participants. It is not a commercial bargaining point.

Merging the adviser bodies provides a genuine opportunity to establish absolute clarity on advice standards. Please note that I am not referring to educational qualifications or suggesting that one organisations rules prevails over the others.

Behavioural standards...ethics....practice standards when it comes to defining what is acceptable or unacceptable ways of interacting with consumers. These are area which are fundamental to defining a profession, and which are yet to be universally defined in the New Zealand advice industry.

They are the starting point for developing a profession, and bringing together the main players to establish commonality in these areas at the very least will be a healthy move for all.

I applaud the leadership of the PAA ad the IFA. It is a significant step forward for everyone - even those who are not members of either.
On 9 June 2016 at 10:05 am AdviserMan said:
Yes, big congratulations to both associations for taking a stand for Advice, consumers, and Adviser's future. If we don't do something collective, we will remain divided and lack any strength to maintain the role we play in NZ financial success.

Will be interesting to see how members of both respond and vote, and if other smaller associations want to join in?
On 9 June 2016 at 10:07 am R1 said:
From my own perspective I would not support the organisation until it has clearly demonstrated that it is a serious professional body. It could start by beefing up the content of its annual conferences (e.g. get rid of sales pitches from product sellers) and having a proper code of conduct that reflects very high ethical standards and the needs of investors which is also enforced when members transgress.
On 9 June 2016 at 11:53 am Pragmatic said:
Survival requires compromise. The bringing together of these discretionary trade bodies is the next step in the evolution of the industry
On 9 June 2016 at 12:42 pm Murray Weatherston said:
I think the updated opening paragraph quoting IFA boss Micheal Dowling means both that your headline is misleading, and that the earliest commenters have actually popped the champagne corks for a single industry body too early.

We all need to hold our breath and wait till there is more flesh on the purpose and shape of the new FANZ.

As I understand it, all that is announced today is a generalised concept or idea, and a name. That does not make a strategy IMHO.
On 9 June 2016 at 1:20 pm Murray Weatherston said:
A question for R1

Do you think that the Code of Coduct for AFAs as promulgated under the FAA is a "proper code that reflects very high ethical standards and the needs of investors which is enforced when [AFAs] transgress.

If No, where does it fall short IYHO?
On 9 June 2016 at 2:56 pm Mr Slater said:
Well said Tony Vidler. I agree 100% with your comments and the proposed merger. It's needed.
On 9 June 2016 at 3:15 pm Brent Sheather said:
Hi Murray

The code of conduct is patently ridiculous especially to someone who has worked in the industry since 1984. It is ridiculous on a number of points, it’s ridiculous when it says advisors are supposed to put their clients’ interests first, yet firms with an investment banking arm have two clients participating in the same transaction – one buying, one selling. Inevitably one gets put further first than the other - no surprises which one.

It’s ridiculous when you look at the stupid sales training which masquerades as CPD.

It’s pathetically ridiculous when you see that the architects of the code decided that clients’ interests would be put first by disclosing conflicts of interest, in terms that clients can’t understand, rather than eliminating the conflict.

It’s ridiculous that clients’ interests can be being put first in an investment plan whereby more than 1/3 of returns are siphoned off in fees yet the client bears all the risk.

It’s embarrassing when the chairman of the code committee apparently lobbies the FMA to allow unfair fees.

I could go on but I won’t cause it’s so depressing.

Would like to hear your views on each of these points, particularly in terms of putting clients’ interests first.

On 9 June 2016 at 4:23 pm R1 said:
Thanks for the question Murray and also thanks Brent for your perspective.

At issue for me is the fact that the current code 'as promulgated under the FAA' has not been enforced by the regulator (e.g. banks' AFAs widely mis-selling their products has been met with commentary and warnings from the FMA rather than discipline and/or prosecution. and the problem continues apace. There is an opportunity for a representative professional association to raise the bar, enforce its own standards and be seen to enforce them in the interests of investors and its AFA members.

The FMA has let us down (as Brent has described) and a properly set up and run professional association has a chance of doing what is necessary to rebuild the credibility of the industry.

My concern is that the history of the 2 organisations talking about/planning merging makes me sceptical about the possible new organisation's ability to do the right thing and so I would not be signing on until results were seen in the sorts of ways I suggested.
On 9 June 2016 at 5:58 pm Pragmatic said:
Only a fool knows everything. A wise man knows how little he knows. I have attended many of the CPD events, and are yet to see you there. Perhaps you should attend before you criticise
On 9 June 2016 at 6:48 pm Murray Weatherston said:
Hi Brent
Let me have a go at an answer. I hope Phil will allow me a lengthy response. If he won’t I’ll split into into sections and post consecutively.

Putting client’s interests first.
This makes sense to me only in the context of conflicts of interest. What it means to me is that when there is a conflict between the interests of the client and the interest of the adviser (or her firm) then the client’s interests must be preferred.

Whether this actually occurs can only be judged ex post, and usually only after something has gone wrong.
I think your view that conflicts must be eliminated is utopian. That says to me that if conflict cannot be eliminated, then the client has to be turned away.

I am of the school that says conflicts have to be disclosed, and then the client can decide whether to continue or go elsewhere.

You are right though that conflicts have to be disclosed in a way that the client understands. I don’t know where you get the idea that the Code prescribes that they must be disclosed in a way that means the client can’t understand. Under the Code AFAs have an obligation to communicate in a way that is clear concise and effective. If the client can’t or doesn’t understand, than I don’t see how that meets the effectiveness test.

In the sharebroker service, most times the broker is acting as Principal in a transaction with a client. The broker then offloads/fills that contract with an opposite contract as a principal with the other side. This will be done either off market (within the brokers own business) or on market (with another broker). I don’t see a problem with that sort of transaction.

There will be Cases where the broker is acting more as an agent for a principal either disclosed or undisclosed. One case would be where an acquirer wants to do a raid on a target; another case would be where an institution wants to flog a large parcel and enlists the broker to find buyers. In such cases I think the broker adviser has an obligation to disclose that this is not an ordinary market transaction and that she is operating as an agent of the other side.

With respect to IPOs, I am sure you aware of the "winner’s curse" – if your broker guarantees you as much stock as you want it’s a dog, and you can’t get what you want of a star. With IPOs it’s hard to not conclude that the broker adviser is nothing more than a salesman.

In cases where an adviser works for a manufacturer or a service provider(broker) there needs to be clarity on what the adviser has to disclose.

Where an adviser works for a manufacturer, a client should not be surprised to be recommended a decent % of the manufacturer’s products. But shouldn’t the adviser disclose not only what the adviser will earn, but also the management fees that his employer will earn on his product? E.g “I am on a salary with a bonus structure whereby I am entitled to 0.5% on any funds over $100,000 that I bring in each month. My employer will earn management fees of 1.25% p.a. on the market value of your investment with us.”

And in the case of a bank adviser recommending a bank TD, shouldn’t she disclose not only what she earns as an adviser but also the margin that her bank will make on the deposit i.e. assuming a 2.5% interest margin, the disclosure might be “I am on a fixed salary only. My employer will make 2.5% p.a. margin on the funds you invest in our TDs).”

That to me discloses the whole conflict. But I doubt that the employer’s whack is disclosed very often.

Re your comments on CPD. We are surrounded everywhere by a disease called “tick boxism” CPD is no different. But under the Code, what is and isn’t counted as CPD is not decided by the training provider. Each AFA has an obligation to determine for herself what is and isn’t CPD. This is of course subject to audit by FMA, but I confess I am not aware of anyone having failed an audit. I don’t know what the penalty would be for failing.

Your serve


PS words in the feminine also impart the masculine (in case there are any minists around).
On 9 June 2016 at 10:13 pm Mr Slater said:
Brent there some very good non sales based CPD training offered by me and the IDS team, the PAA and the Professional IQ College.

Like you I thought I new pretty much all I needed to until I took up learning again. It was one of the best decisions I ever made and resulted in a Masters Degree. More importantly I realised the value of the term 'never stop learning'.
On 10 June 2016 at 10:43 am Brent Sheather said:
Hi Murray,

Thanks for that. My comment about investment banking related to IPO’s but there are lots of other issues, not least of which is the fact that trading revenues are a substantial part of a profit of the banks, stockbrokers not to mention the likes of Goldman Sachs. How on earth anyone could think the clients’ interests are put first in this environment is beyond me. I know how things work.

You might be from the school that says conflict has to be disclosed but lots of experts are of the view that it’s better to eliminate them. That’s why the US implemented the Glass-Steagall Act that split investment banking from retail banking back in the 30’s. Only pressure from banks saw it repealed. If any readers don’t know about Glass-Steagall they should ask their training provider!

As regards CPD I’m sure there are some good courses but the fact that the Code permits stupid sales events provided free by small fund managers advocating niche solutions with high fees that increase tracking error is ridiculous and embarrassing. Then there are stupid courses like the one I saw for financial advisors learning to trade 90 day bills with CPD credits that make the whole system look like the Code was drafted by idiots with no knowledge of the industry.
On 10 June 2016 at 10:43 am Brent Sheather said:
Pragmatic, I don’t know everything – that’s why I read the FT, the Financial Analysts Journal, the Journal of Finance, the Economist and various other research publications (I think we pay about $20,000 per year to various economic forecasting groups).

For the record we have managed to eliminate most conflicts ie no investment banking, no fund management business etc etc. In addition and most importantly because we charge low fees we are able to recommend low risk solutions. In contrast if “your putting clients first” solution has a 2-3% embedded annual fee structure you have to advocate higher risk solutions. This is a fact and something the FMA should focus on. I’m not saying we are perfect but our strategy seems to work for clients and us ie $800 million in FUM, no advertising and an anti-marketing strategy.

On 10 June 2016 at 1:48 pm Referee said:
Well done on the two bodies seeking change to address the industry relevance today. The fabric of today is very different to what it was when IFA and PAA began.

In 1954 this began with the formation of the Life Underwriters Association of New Zealand (LUA) and their Purpose was to set greater standards of professionalism. Since then various professional bodies and interest groups have evolved most with similar objectives. The common theme is professional ‘Financial Advice’ for the consumer – similar to the formation of the societies representing Lawyers, Accountants, Engineers, etc.

It is not going to be easy. The establishment of sub-groups like Simon says is going to be vital if the new body is going to satisfy its now (and growing) diverse Membership. This is very evident from comments above.
On 10 June 2016 at 1:51 pm Makes Sense said:
Brent, your business model is full of conflict of interest. You recommend someone buy a security, then execute the trade thereby presumably generating substantial revenues from your book. be interested to know how much revenue you derive from your broking activities?? you any better than the rest? I don't think so.
On 10 June 2016 at 2:54 pm Stephen O'Connor said:
Brent, the code does not 'permit stupid sales events'.

Structured professional development is defined as "training that has identifiable aims and with outcomes relevant to the learning needs identified in the AFA’s professional development plan, and:

(a) is provided by a qualified educator or relevant subject matter expert; and
(b) provides for interaction and feedback; and (c) participation is verifiable by documentation. Structured professional development may include technical product training but excludes training provided for the principal purpose of promoting a particular financial product."
On 13 June 2016 at 8:53 am Brent Sheather said:
Thanks for that useful advice "Makes Sense" but imagine what our funds under management would be if we got things right. Regards Brent

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