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Let's get these adviser rules right

It's been a couple of weeks since the Exposure Draft of the proposed new financial adviser legislation was released and something funny has happened. Lots of people in the financial advice sector agree on things.

Tuesday, March 14th 2017, 9:53AM 3 Comments

by Philip Macalister

The bad news is most of the agreement is about the key things which are wrong with the changes proposed in the 

While MBIE have generally being given credit for the amount and depth of consultation they have done about the Financial Advisers Act and what needs changing, it seems some of this was lost in translation when the legal people came to drafting the new bill.

Two areas which are creating angst are the need for better differentiation between advice and sales. This has been a number one issue from day one and indeed the way the current regime works, especially with the QFE option. There are two playing fields. One for independent advisers who give true advice. The other for vertically integrated organisations to sell their own products sans objectivity.

Consumers need to clearly be able to differentiate when they are being sold something. 

If you really look at what the Government has been saying about providing consumer confidence and trust in the area of financial advice then what is proposed is a failure on its own score card.

The second issue which is likely to gain more traction this week is around the the definition of client duty first. We've already run one story which suggests the Code Committee think what is being proposed in s431H is much narrower than what the Code Committee intend CS1 to mean. On the other hand the Code Committee has never, to my knowledge, explained what duty means. 

This is an important thing to get right. It is up to the profession to make sure what is in the final legislation is workable and fair.

That brings me to the third point. Will this bill progress before the September general election? My gut feel is no. The odds have to be against it progressing too far. There are a number of reasons including the election being two months earlier than what was expected. That means the timeline expressed last year was further compressed as the Exposure Draft was also late coming out.

Added to that there is a new minister, Jacqui Dean, overseeing the passage of this legislation. 

When the original FAA was developed Labour's Commerce Minister Lianne Dalziell had a clear hand on the tiller. When National won the election its minister Simon Power steered the bill through Parliament. (Later he left politics and joined Westpac). This time around it appears Ministerial touch is relatively light.

Thirdly, I've for sometime argued that National governments are pretty poor at introducing changes in the financial services area. Look back over recent history and all the big stuff has been done by Labour. KiwiSaver, PIE tax, NZ Super Fund and so the list goes on. Indeed the original FAA was, from memory, started by Labour. 

This argument gets weakened a little with Prime Minister Bill English's NZ Super announcement last week, but hey that's only talk at the moment and the change is 20 years away!

But most importantly MBIE has to get this Exposure Draft right. It isn't at the moment and it is up to everyone, including all advisers, to make sure they have their say before the submission deadline expires at the end of this month.

We don't want to see a repeat of the FAA where the bill is shoved through Parliament at the last minute and a clause for a five-year review is thrown in so any problems can be fixed later.

Tags: Code Committee Financial Advisers Act MoBIE

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Comments from our readers

On 14 March 2017 at 3:10 pm Ron Flood said:
It would appear that we may be able to convince the Minister for Commerce and Consumer affairs, Jacqui Dean that the current designations, in particular, Financial Advice Representative should be changed.

When asked today about the false labelling of eggs, and although deflecting the question, she did make one very important statement. She said, "Any activity which is not straight with the comsumer is a concern with me."

I would suggest that we all start emailing her with one of our biggest concerns, the Financial Advice Representative designation. This designation is not being straight with the consumer and should be changed.

I think the Minister needs to be made aware of this now, before the final draft is approved as I can't see any way the BEOT will alow the draft to be changed.
On 18 March 2017 at 3:12 pm Murray Weatherston said:
@Ron I think you are probably either dreaming or clutching at straws or both.
But even if you are right, I think you are concentrating on the wrong target - it's not what the banks I mean FARs are allowed to call their employees, it's what those employees are allowed to do that matters.
Even if Minister Deans sees the light and changes the name to your preferred name (restricted financial adviser) these RFAs will still be able to sell the banks products under the legal guise of financial advice.
That is the real issue here, not what the sellers are called.
It's actually possible that the BEOT's Trojan horse is actually the term FAR - they will use it to deflect all the attention off other issues, at the end of the day "consent" to some other less offensive name, but meantime they will have overtaken completely the town of Advice.
And while I am sort of on the subject of offensive names, I wonder if officials realise the urban meaning of the acronym formed from the initials of Financial Advice Providers? Just asking......
On 19 March 2017 at 11:12 am dcwhyte said:
@Ron, @ Murray - It's actually both. Ron's point about FAR being inappropriate is on the money as the consumer has already been confused by AFA/RFA and including the term 'advice' for product provider salespeople extends that confusion.
Murray is absolutely correct in seeking to prevent sales being disguised as advice.

Check out what's happened in Oz.

And making the BEOT's product sales forces subject to the Code of Conduct only gives them a false credibility - and confuses the consumer even more.

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