Back to the novel for holiday reading

However, we learnt yesterday that this document won’t be published before Christmas as promised earlier. The Kaikora earthquakes two weeks ago have been blamed for this delay.

There are a few people out their wondering if this is really just an excuse for a delay, which may indicate that there are other issues going on and we could be in for some deja vu.

The Minister of Commerce, Paul Goldsmith, and MBIE officials have indicated several months ago that the document was not far away. Indeed he made those comments at the SHARE NZ conference several months ago.

The importance of the exposure draft is that it is pretty much the last chance you will get to influence what is in the new act.

One of the things that worries me is a sense of deja vu. In the latest issue of TMM we have been talking to banks and dealer groups about the proposed changes to see what they may do if the regime is changed along the line MBIE outlined in July.

Some had given it quite a bit of thought. Others had paid little attention to date.

Others said they weren't thinking about changes after what happened when the FAA was originally introduced. Back then the government did a sudden u-turn at the last minute, changed the rules and introduced QFEs.

Many people we have spoken to recently are suspicious the same thing may happen this time around.

Their suspicions are increased with yesterday's news plus what already seems like a long delay.

While Goldsmith was hoping to have the new bill passed into law before next year's election, my guess are all bets are off here.

The one point that needs to be stressed though is that the new FAA will tip the current RFA world on its head. Anyone who is an RFA needs to be closely watching what is happening.

As Code Committee chairman David Ireland says; if you sit back and do nothing now and don't submit on the proposals then you have no right to complain and whinge if you don't like the outcome.

Comments from our readers

On 2 December 2016 at 4:45 pm NormanStacey said:

Subsidies for the dwindling number of non-aligned, unbiased, Independent AFA's - those who place client's interests ahead of product manufacturers - ahead?
"Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it". Ronald Reagan

On 2 December 2016 at 6:30 pm Murray Weatherston said:

Phil, it's hard to get a read on this.

I think I can understand that the legislation drafters might have been called onto other duties to write E/Q related legislation/regulations.

But it's harder to understand why the FAAR people at MBIE are so far behind. In the original paper the Minister said he would be back to Cabinet in September with policy on a few outstanding issues.

We know he missed the September deadline. We have to assume he missed an October date.

And we have to believe he missed a November date as well. Because why, when he turned MBIE's major paper around in a week mid year would he take longer on only a few matters.

Surely if he had taken a paper to Cabinet already, he would have been anxious to announce to show progress. Why would there be secrecy on those decisions - why would we have to wait till the ED of the Bill to find out what those design parameters were?

Phil, in your article are you alluding to the possibility that the big end of town might not be happy with what is proposed, and want to go for Mark IV? Are you withholding any evidence that this might be the case?

Finally Phil I'm not at all worried about them not passing the legislation in time - deja vu would have them repeating the Second Reading, Committee stages and the Third Reading in a single afternoon in parliament in the shadow of the Election (like last time), but CTA* by putting in a clause requiring another review in 5 years in case they didn't get things exactly right this time either.

*CTA is the third person plural of CYA.

On 5 December 2016 at 9:41 am blogger billy said:

I'd rather read Barry Crump

Would anyone be surprised if BA is introduced ?

i.e. "bank adviser" and BA has a nice ring to it

Whereas we will be FA's which does not have a nice ring to it at all

Oh, and I am not excited about having to register myself again as an adviser and then register my company too -

since I am the company and the company is me

At the very beginning I registered both – then was told several months later that I did not need to and I could get a refund

Which I did

Then a prospective client told me my company appeared to be de-registered

When I asked the FSPR for it to be removed they said they could not

And despite my protestations the FSPR did not seem to care either

Don’t ya just love it !

On 6 December 2016 at 10:12 am blogger billy said:

Just for the record

Bureaucracy in NZ employs:

- 2,500 policy analyst on an average salary of $90,000

- 5,000 govt departmental managers on salaries averaging $124,000

Small Business in NZ

Simon Bridges MP for Tauranga says the National government want to look after small businesses

Since small business in NZ employing less than 20 people make up 97% of all NZ enterprises

I am a small businessman but I don't get that looked after feeling at all.

Do you ?

On 6 December 2016 at 1:17 pm w k said:

@billy: nope.
my feeling (also a small bizman): every opportunity being taken to dip into my pockets.

On 7 December 2016 at 10:10 am dcwhyte said:

To be honest, I still lack consumer-level clarity about how a bank employee can reconcile client best interest (or whatever words you choose for this concept) while only having access to his/her employers products.

Surely a bank (or any other vertically integrated organisation) is entitled to retain the services of its employees or exclusive contractors to promote its own products. But accepting that premise, it is also impossible to serve two masters, i.e. the client and the employer.

So given that vertically integrated companies have every right to distribute their own products, it seems a nonsense to make their employees subject to a Code of Conduct that requires client interest to be placed ahead of their employer.

So here's my solution-

1. Those individuals retained to promote, recommend, and distribute products on an exclusive contract for/of service are designated Product Advisers, e.g. Westpac Product Provider, ANZ Product Provider, etc. Product Advisers are not subject to the client best interest concept, but to an appropriate suitability test. An attribution test should be applied, so that if 80% or more of any adviser's business is placed with one product provider, they are considered to be a Product Adviser.

2. If we are intent upon entity licensing, which it seems we are, then diluting the concept by having different categories of advisers (i.e. Financial Advisers and Agents) only serves to maintain the current confusion. Those individuals who have no exclusive contractual restriction should be designated Financial Advisers and are responsible to the licensed entity to which they are attached for their adherence to the Code of Conduct - which includes the client best interest concept.

This suggestion has only two categories of adviser - not three as proposed - and provides the consumer with a clear demarcation and identification of status upon which to make a more informed judgement. The disclosure requirements of each category strengthen the lines of demarcation for the consumer.

So FMA licensed banks and other QFEs retain the services of Product Advisers, while Financial Advisers operate under the FMA's entity licensing regime, answerable to a higher level of accountability due to the extended scope of their knowledge and understanding of the wider market.

On 9 December 2016 at 6:34 am Murray Weatherston said:

Hi David
Let me have a go at cleaning your glasses to give you clarity on the problem you raise in your first sentence.
First, the standard is not "best interests" - its put the interests of the client first. These concepts are not the same.
Under PTICF, the bank adviser with an APL should have to
1. tell the consumer she is an employee of the bank
2. tell the consumer that she is limited by her employer in the range of products she can advise/recommend/sell
3. if applicable tell the consumer that in fact, she can only advise/recommend/sell her employer's own products
4. tell the consumer that she is paid a salary and if applicable she gets add-ons based on volumes signed up
5. tell the consumer how much her employer will make if the consumer takes her advice/recommendation/sales pitch to buy the employer's products.
6. more controversially, tell the consumer that there other products available.
Armed with that information, the consumer can then make a choice - walk away and go to someone less conflicted and limited, or continue to deal with the bank employee.
We should all be free to adopt potentially sub-optimal solutions. We don't want the State to tell us what we can and cannot do, with whom and when.

Re your suggestion to call bank employees "Product representatives" - why use two words when one, "salesperchild" would do. Call a spade a spade. But I think your suggestion will go into the same bin that all our submissions that sales should be separated from advice were dumped. The banks' regulator capture executed that notion with no questions asked.

On 9 December 2016 at 1:03 pm dcwhyte said:

Hi Murray,

Of course the two terms are not the same - I agree.

In the spirit of Christmas, I was merely adopting Rob Everett's approach i.e. everyone knows what is meant, you don't need an Idiots Guide to the concept.

Odd words from a regulator, but there we have it.

I agree with all you write, except I just don't understand how long the Bank Product Representative's APL is for, say, term life?

Is a list a list if there is only one item on it?

And all of your disclosure steps are absolutely on the money, although I suspect you could easily run 2 and 3 together.

#4 career promotion prospects for volume sales?

#5 any push-back should be resisted - assumed profit margins on products are easily extracted.

# 6 can't see that happening - but should, for sure.

Agree with freedom of choice - be thankful ASIC is not here!

I just believe there has to be the word "product" in this individuals job title so that the function can be identified by that title.

A financial adviser gives advice on financial matters - clear and unequivocal; a bank manager manages the bank.

But an 'agent' can be anyone from James Bond to the Avon Lady; a representative can be anyone from your local MP to Richie McCaw.

The consumer should be able to see the name of the job title and have a clear understanding of the functions offered, supported by disclosure as per your post.

Whether we agree/disagree or like/dislike, the banks are far more effective at lobbying for their cause than non-aligned advisers. Mainly because they speak with a common, united, and uniform voice.

Any suggestions?

Back to the novel for holiday reading

I thought every financial advisers’ holiday reading this summer would be a copy of the Exposure Draft of the revised Financial Advisers Act.

Friday, December 2nd 2016, 3:10PM 10 Comments

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