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Industry must embrace change: CFFC

Too many New Zealanders are still confused about where to get advice, how to work out whether it is the right advice for them and whether it is any good.

Tuesday, September 6th 2016, 6:00AM 12 Comments

by Susan Edmunds

That’s according to the Commission for Financial Capability, which is this week running the annual Money Week, which includes a focus on the importance of having a financial plan.

Group manager of investor education David Boyle said he was asked about advice by members of the public at least weekly.

He said while there was work to do on public education, the industry needed to step up and adapt, as well. 

“The industry has got to evolve and change and provide advice in a way so people get what they want when they want it. Not just trying to fit square pegs into a square hole. Everyone knows non-bank advice is not growing and there needs to be other choices.”

He said while there were often conversations within the industry about how to get clients paying for advice, it was of no value unless it was appropriate and consumers had the confidence in it, he said.

It was a timely conversation to happen while the Financial Advisers Act review was under way and providing a solid foundation to build on, he said. There was probably a role for the CFFC but the industry as a whole needed to think about how it could tackle the question.

It has been made clear that it is something Financial Advice NZ will aim to tackle but Boyle said they would have to overcome consumer skepticism about an organisation promoting its own members.  “Anyone who’s representing a particular industry body, product or service can’t help but be seen to be a bit biased.”

He said when advisers could show New Zealanders they could provide advice they wanted in a way that would be effective that would be the start of more growth in the industry. If people had confidence they could get advice in a number of different ways that would be a win for everyone, he said.

“I honestly see the cup half full when it comes to getting more advice out to New Zealanders.”

Tags: Commission for Financial Capability

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Comments from our readers

On 6 September 2016 at 8:56 am AFA Muggins said:
“Anyone who’s representing a particular industry body, product or service can’t help but be seen to be a bit biased.”

Which is exactly the problem faced by the revolving door policies that regulators have with the vested interests of the product community.

Regulation has been a disaster for the public and those who are non QFE aligned.

It sounds as though more regulation is intended that could be the death knell to unbiased advice.

On 6 September 2016 at 9:38 am Simon Hassan said:
The public confusion arises because the current law labels too many kinds of people as “financial advisers”.

Despite all the grey areas (including the very many of us who work both ways some of the time but one of these most of the time) there are really only two kinds of people involved in assisting, providing information, and guiding members of the public about financial products:

(a) those employed by or who (at the time) are acting as an agent of a bank or other organisation to sell/promote/distribute its – or a restricted range of – financial products to members of the public, whilst of course acting under the general duty of care; and
(b) those who assist and guide members of the public in making financial decisions – whether or not these involve financial products – and who in doing so have no loyalty higher than that to their client.

Only those who fit the descriptions in (b):

(i) should be able to call themselves “financial advisers”, and
(ii) (if they also offer a DIMS or provide ongoing investment advice) “investment planners” or “investment advisers”, or
(iii) (if their advice can cover more than one area) “financial planners”.

Whilst a challenge to many business models currently operating in “financial advisory” firms around New Zealand I think this approach is the only way to remove the confusion. It will also allow genuinely independent smaller professional players to compete with the institutions on a more level playing field.
On 6 September 2016 at 10:48 am R1 said:
I would agree with you Simon if your group (b)s are not taking commissions from product providers, otherwise they will be seen as and should be classified with your group (a)s
On 6 September 2016 at 12:32 pm said:
The CFFC vision of “everyone getting ahead financially” can’t be delivered by Financial Advisers in a profitable manner. Asking the industry to step up and adapt their value proposition to align with the CFFC is a pipe dream.
To make a living, Advisers need to deal with a particular subset of the market. Using Simon’s nomenclature, financial planners maybe specialising in the market where well educated, income in excess of $100k, at least $100k if investible assets, roam free.
In my humble experience trying to fit square pegs into a square hole is usually the way to get ahead notwithstanding the CFFC may think otherwise.
On 7 September 2016 at 7:54 am Bikedude said:
R1 I dont agree at all. Consumers expect Advisers to be paid, and most do not want to pay directly for advice. Knowing that all producy providors are paying a commission (even though there are relatively minor differences in the amounts) actually levels the field again. Or are you a no commission proponent??? Interesting. Are you on a salary by chance>
On 7 September 2016 at 12:33 pm blogger billy said:
A Virus has been identified in our industry that causes fed upness, irritation, annoyance, exasperation, and general p…..d offness.

It has been named the “should” virus and widely affects FA's.

The known cause is so many people continually telling FA’s what they “should” do

e.g. the FMA, Pragmatic, R1, Dave Greenslade, Bruce Corstesi, David Boyle, Diane Maxwell, Brett Sheather, the headmaster, The Code Committee, the MBIE, Henry Filth, and many more

But it easily cured. FA’s just need to remember that most of these people have never been advisers

So their advice, tedious though it is, is not worth much (indeed if anything)
On 7 September 2016 at 2:27 pm AFA Muggins said:
It never ceases to amaze me how highly paid civil servants continue to tell the advisory profession what we should be doing more of, for the underpaid general public. They tell us we need to ‘change’ so that we serve the needs of the underpaid public better, so that the highly paid civil servants appear to be doing something useful.
The general thrust of this article is yet another self-serving monologue.
Details of the remuneration for CFFC staff over $100,000 p.a. can be found on page 60 of the Annual Report for the CFFC:

The reality is that most of the public cannot afford a fee based financial plan. I know this, because this is the majority of the work I do. For a detailed plan to be effective, I need to put considerable amounts of time and analysis into the plan. Compliance has increased this time burden, yet the advice is still similar to what it was prior to the current regulatory regime. Just more ‘stuff’ in there. I would make more money simply selling products. I do very little in the way of product sales however. I simply cannot afford to work for the ‘average’ New Zealander, as they cannot afford to pay me to even cover costs for a basic plan.

I keep being struck by the feeling that most of the ‘commentators’ telling us what we should and shouldn’t do, are in the higher echelon of income earners in New Zealand, and are completely removed from the reality of life for the average New Zealander, who are on an average income.

They quite simply have a disconnect between their own world and the world they are supposed to serve.
On 8 September 2016 at 8:50 am Brent Sheather said:
Whilst I agree with some of Mr Boyle’s comments many are so general as to be difficult to interpret. Maybe a political career awaits? However Mr Boyle challenges the industry to step up. This is just a wee bit ironic because Mr Boyle is apparently the “group manager of investor education” but despite the fact that the intelligence of our newspaper readers and TV watchers is regularly insulted by experts talking their book e.g. “higher expenses equals higher returns” there is never any criticism of these erroneous comments and bad advice from the CFFC. Why is that? Surely correcting misinformation is a critical part of their job and in particular Mr Boyle’s job. Some public humiliation of an expert talking their book would work wonders. My guess is that Mr Boyle and his crew are silent on these issues either because they don’t understand them (or choose not to) or because the CFFC doesn’t want to rock the boat. In particular many CFFC employees have previously worked for banks and perhaps want to keep the option of re-employment open. So the CFFC clearly isn’t doing it’s job yet the CFFC has the temerity to tell advisors they need to get their act together!

It is absolutely shameful and pathetic that the CFFC and the FMA remain silent when industry experts regularly inflict bad advice on the public. Some recent examples of bad advice are as follows:

• “The higher the fees you pay the higher will be your returns”.
• Despite the fact that annual fees are much too high and appropriate (i.e. take) most of the risk premium there is never any specific comment on this from the CFFC using actual numbers.
• Dealing with an organisation that only sells its own high cost products is not a problem because they are required to “put your interest’s first”.
• “Power dressing and positive thinking are essential strategies for investment success”.
• “Saving money on little things like that morning coffee is an important component in fulfilling investment objectives.”
• “Whilst passive funds invest in unethical companies active funds don’t”. The reality is that ethical companies are a continuum with, at one end of the spectrum, the least unethical companies and at the other end the most unethical i.e banks and cluster bomb manufacturers. A cynic would further observe that most active funds are themselves unethical because they appropriate most of the risk premium and that it is doubly ironic that the ones that label themselves “ethical” generally charge the higher fees.
• If you are lucky enough to be a high net worth individual then paying 2-3% of the value of your investment portfolio each year to your private wealth manager in return for her organising children’s parties, social events and the servicing of your helicopter is essential. If you are really lucky your private banker will provide a “bespoke, holistic service” involving “insight” and “thought leadership” whilst at the same time being “proactive”.

Lots of work to be done in your own backyard Mr Boyle.

Just on the other comments: Bikedude there are lots of people who are happy to pay directly for advice. We manage $800m for some of them, Blogger Billy my name is Brent, does Alan have one L or two? AFA muggins, I agree that the reality is most of the public can’t afford a fee based financial plan and the sooner we get the robots involved the better.

On 8 September 2016 at 10:31 am smitty said:
@ AFA Muggins, thanks for the reference. I'm guessing the CEO receives the single salary of $250k+. Hmm is this to attract the best talent?

I'm not so sure.

You could halve that salary and still attract a passionate and ardent support of financial advice in NZ.

Actually let's pose the question, what is the CEO of CFFC doing for the public this money week?

I've looked on the website, can't see one thing that she is doing voluntarily. I'm sure advisers in NZ would be more supportive of the endeavours of CFFC had the organisation led by example, rather than laying the blame at the market, or focusing incessantly on a fees conversation.
On 8 September 2016 at 4:46 pm AFA Muggins said:
@smitty - I think the CEO will be earning the $260 - $270k salary.

There are 14 earning $100k plus. 6 Earning $130k plus.

My point wasn't to single any one of them out but that they must be somewhat removed from the reality of the situation for the average New Zealander, and the expectations of what advisers can do for free.
On 9 September 2016 at 8:36 pm Winka said:
Let's assume that the fee-based plan is set at 3%pa of funds under management.

The well-paid civil servants who dictate what is right or wrong could pay 2% of this fee and the relative client the balance of 2%.

I disagree with Muggins claim that 'regulation' has been a disaster, how could that be?
I reckon that it would be more accurate to state that the dictatorship of regulation has been the disaster.

The ultimate form of regulation was in place well before the GFC,in the form of a prospectus.
The problem became that the directors of the companies regulated by each prospectus were hauled across the coals and the ultimate 'chiefs', the Trustees were left to go their own way.
Can you name one of the Trustees who has even come close to going to court?

Watch out all of you as you gradually are left with no option but to operate your financial planning businesses under the control of civil servants who are seen to be heading those that demand that you pay annual fees so they can in turn take you to court and fine you to add additional funds to their coffers?

Oh, recently they were said to be applying for an additional handout from central government of $20 million, because they felt a bit lean and vulnerable with their current $12 million of so.

I suggest that it is almost a bit too late to stem the tide.
On 11 September 2016 at 12:22 pm RiskAdviser said:
While I agree with Simon's comments, the continued frustration is insurance and mortgage advisers are continually left out of the discussion. They too are financial advisers.

They may not be dealing with money at a positive invest to make a return end of the scale but they are still dealing with large sums, the sort that make eyes water if they are not handled correctly.

Life insurance products are no less complex than the plethora of investment options available and continues to create great harm when poorly advised and sold. Unfortunately, the poor client isn't in a position to complain loudly like a healthy wealthly investor can.

To suggest because there is no noise there is no harm is naive. Those with debt and facing life-changing medical events don't usually have money available nor the energy to complain, so we hear very little from them. However when you get into the trenches and ask some questions, examples of professional negligence pop out all over.

To classify insurance and in many cases, mortgages, as simple products, misses the enormous risk of getting it wrong.

I don't agree commission is an evil thing, yes it can be a motivator of poor behaviour, but as we have seen the regulator is getting started on that problem.

Commission is also becoming less of a factor than we had 10 years ago, when looking across provider offerings, with the majority offering similar levels of commission.

The replacement business issue needs addressing and this can and will level the field. Hopefully, it will also prompt providers to move quicker when improving the products available.

I have introduced fee based risk advice options to new clients and frankly no one is interested. Yes, fully explained $ for advice for discounts on premium, they do not see the 20-30% reduction in premiums as a significant enough difference to convert a monthly premium into a cash bill now. And that is a reasonable not exorbitant fee based on what I have compared to other advisers who have fee options.

As a number of insurance companies have commented, the commission model works well for them and does ensure advisers can have independence. Moving to a fee model will drive insurance adviser businesses to the providers and back to a tied agency model. Reducing consumer choice, consumer options and ultimately poorer products.

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