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MBIE: Tell us what's better than FAR

With just over a week left of consultation, the Ministry for Business, Innovation and Employment has received just 10 submissions on the law that will transform the financial advice sector. But it says it knows there are concerns about some aspects - and wants to know how it could be made better.

Wednesday, March 22nd 2017, 6:00AM 29 Comments

by Susan Edmunds

The Financial Services Legislation Amendment Bill repeals the Financial Advisers Act and introduces financial advice provisions into the Financial Markets Conduct Act.

An exposure draft of the bill has been out for a six-week consultation period. MBIE also wants feedback on its proposed transitional arrangements. 

There have been concerns about several aspects of the bill, including the "financial advice representative" designation, and the wording of the client-first duty.

MBIE said it was seeking feedback on the terminology used.  "After receiving feedback that the term ‘agent’ wasn’t workable we changed it to ‘financial advice representative’. However, we have heard some concerns that ‘financial advice representative’ may also be problematic. We would like to understand this further and welcome suggestions for alternative designations that will be more suitable and why."

It said it was important that it understood if any of the drafting or terminology could have unintended consequences. "For example, we have heard some concerns about potential unintended consequences from the current drafting of the client’s interests first duty."

It said the idea of sales and advice being separated in the law had been hotly debated. "We consulted extensively on the option of applying fewer obligations to some people who would be labelled ‘salespeople’. However, this would have meant that these people would be able to give financial advice (that is, make a recommendation or give an opinion to acquire or dispose of a financial product) without being held to the same standards as others performing the same activity.

"We were concerned this would not achieve the objectives of the review, further limit access to quality financial advice and ultimately lead to poor consumer outcomes. A key criticism of the current regime is that different people performing similar activities are held to different standards."

David Ireland, chairman of the Code Committee, which administers the code of professional conduct for financial advisers, said advisers who had concerns about what was proposed should make a submission.

"It is - despite what critics say - a genuine consultation period."

He said it was inevitable that there would be aspects or situations that the Ministry had not thought of in drafting the bill.

"It's important for those who are affected by the change to have a look at what is proposed and think about what it means for them. If something is not going to work for them, they need to give feedback. Despite what some have said, they do take that on board."

Consultation closes on March 31. 

Tags: David Ireland Financial Markets Conduct Act

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Comments from our readers

On 22 March 2017 at 7:07 am Pragmatic said:
"Advice": I give independent advice
"Sales": I sell stuff to benefit my employer
...not rocket science
On 22 March 2017 at 9:03 am w k said:
stop being a time waster. you only need to look back over the years what have been suggested by advisers and what have been adopted (if any at all) by you guys. and you are surprised by the low submission???

did you just said a "genuine consultation period"??? i said this before and i'll say it again - decision has already been made as to what is going to happen way before this "genuine consultation period".

your actions are louder than your words, mate.
On 22 March 2017 at 9:56 am Brent Sheather said:
Exactly. If/when the disaster happens I will consider funding a seven figure sum taking a class action on behalf of the individuals who have been disenfranchised and will use a QC to include any other people indirectly involved.
On 22 March 2017 at 10:01 am Barry Read said:
Selling is not advice and is not covered by the Financial Advisers Act. Product Providers can sell products without offering advice. People are assuming that FAR = Sales Person. It doesn't, it covers people who offer Financial Advice on behalf of the licence holder and the licence holder is responsible for the advice and competency of those advisers. Maybe the solution is to define Sale People as Product Representatives or Distributors as a third designation so that Product Providers who hold licences must tell the regulator who are sales people verses who are advisers. Also maybe FARs who are employed by Product shouldn't be able to offer planning services and have to disclose these limits? i.e. retirement planning, insurance planning etc,and that these are left to Financial Advisers under non-product provider licence holders providing a clear delineation for consumers of where they can advice independent of the conflicts of product provision.
On 22 March 2017 at 10:27 am Dirty Harry said:
"We consulted extensively on the option of applying fewer obligations to some people who would be labelled ‘salespeople’. However, this would have meant that these people would be able to give financial advice (that is, make a recommendation or give an opinion to acquire or dispose of a financial product) without being held to the same standards as others performing the same activity"

These people, who ought to be labelled ‘salespeople’ should NOT be able to give ‘financial advice’ (make recommendations or opinions about acquiring or disposing of any financial product) at all. The root of the problem is exactly this – not what they are called but that the BEOTs keep “working with” MBIE to come up with ways to allow their sales staff to act like advisers without any of the qualifications, accountability or obligations of an AFA.

These people have no knowledge or training or even basic awareness of products not manufactured by their employer, so they should not give “advice” (an opinion about the acquisition of (their products) or the disposal of (someone else’s) financial products) to customers. Period.

This constant having cake and eating it must stop. Either give Financial Advice, or sell a particular product. One compares and contrasts products while PTICF and the other simply sells the particular features and benefits of one particular product without (being qualified and accountable for) making comment on the product being replaced.

“A key criticism of the current regime is that different people performing similar activities are held to different standards."
The problem is not the standards. The problem is not what you call the different people. The problem is that different people, who are held to different standards are actually allowed to perform similar activities in the first place.

MBIE needs to stop dithering over the colour of the lipstick, the pigs are the real problem.
On 22 March 2017 at 10:28 am gavin austin adviser business compliance said:
All valid points but I'd go further (I've made a submission to MBIE and the Minister along the same ideas)and
maintain thatthe proposed use of the term Financial Adviser Representative will do nothing for the Public understanding of the difference between “Advice” and “sales”. For full and unambiguous disclosure to happen, in a way that the public can differentiate between when they are being “SOLD” something versus getting “Advice” about something, the word “Adviser” needs to be allowed only where “advice” is unrestricted. By unrestricted I am using the UK experience where ALL advice is deemed to be restricted where solutions for clients Financial Needs are driven by Banks, Insurance Providers, Stock Broking firms, Financial Service Provider corporates and Fund Manager employees. These Advisers are required to be described as “Restricted Adviser” as they don’t have unfettered access to all the market solutions available.

By way of eg AMP (and I have no issue with AMP it’s just an obvious example) have many advisers who operate under a host of other Business names but are essentially AMP advisers. They are only allowed to recommend Products and Services approved by AMP. So yes, they can recommend product other than AMP’s but there is a restriction that says “only product that we approve and here is the list”.

In this example if we follow the guidance and experience from the UK all these “advisers’ should be referred to as “AMP Restricted Adviser”. This type of upfront disclosure will help make the playing field a level one. I'd extend the term "Restricted" to anyone who does not, or chooses not to, utilise all options available to them. I am sure many advisers will reject this and some will be vocally opposed to it. If you are in the category of restricted and can point to research that supports the "restricted" advice why would you object after all you are charged with putting clients interested first.
On 22 March 2017 at 10:53 am dcwhyte said:
Baz - and there's the heart of the issue.

The term FAR also includes the Salespeople - who are not "performing the same activity" as Financial Advisers.

The definition of financial advice needs to be more precise. The current words - "make a recommendation or give an opinion to acquire or dispose of a financial product" is too general.

I agree that Financial Advisers do this, but do so "on behalf of a client".

FAR's do so "on behalf of a product provider".

The difference is germane.

The distinction must be drawn to clarify for the consumer the true nature of the recommendation.
On 22 March 2017 at 11:58 am Ron Flood said:
In an attempt to remove consumer confusion why not just have Financial Advisers and Restricted Financial Advisers.

A Financial Adviser is licensed individually and is accountable for the advice given.They could be advising clients on a range of solutions from the various range of products/services they can access.

A Restricted Financial Adviser works for a Financial Service Provider, is not individually licensed and not accountable for any advice given on the options they have at their disposal, on products produced or white labelled by their employer. They will have to disclose that they are unable to offer any advice on any other product the client may have from another source.

This will then require the Financial Service Provider to have, within their
ranks, a person who is Licensed to give advice. This is similar to Banks currently having AFA's in their midst.

If they do not have an employee/employer relationship they must then be licensed as a Financial Adviser and be subject to all of the requirements that come with this designation.
On 23 March 2017 at 9:26 am Rod Severn said:
The word "Adviser" MUST be removed from the FAR designation. How about we call them Financial Product Representatives to clearly distinguish between a Financial Adviser and a product representative. One offers a full range of choice and options, the other doesn't. End of story
On 23 March 2017 at 11:02 am Alpo said:
Having spent many hours on submissions in previous so-called "consultation rounds" only to see such submissions totally ignored in favour of the BEOT, I don't intend to waste my time again.

In the interests of both the investing public and the developing advisory profession, clearly the term "advice" has no place whatsoever in the title of one engaged in a product sales role. A reasonable person in the position of a client would expect a genuine "adviser" to place the client's interests first and offer a full range of solutions to do so.

On 23 March 2017 at 2:37 pm Rod Severn said:
WE need to remove the word "Adviser" from the FAR designation. They should be called Financial Product Representatives, because that is what they are. Representing product from a single supplier. A true adviser offers choice and options, Product Representatives do not.
On 24 March 2017 at 9:58 am Tash said:
Well said Rod, and, by the way, your point is no where better illustrated than with life, disability, trauma and medical insurance, where product provider selection does not simply result in a different rate of return but can mean the difference between a claim payable(financial security) and not (financial disaster). Think chemotherapy treatments and medical insurance for one moment, some policies cover chemo not funded by PHARMAC others do not. Difference? Hundreds of thousands of Dollars for a similar premium! Then think Cancer and Heart Attack Definitions in trauma cover, then think about how long disability income benefits will pay, is it to retirement age or only 12 months? How much will it pay? The list of benefit differences is very long and many are of great financial consequence.

Only a professional (and no, they do not have to be AFA's to be professional Fred Dodds!) who knows the products of all the providers, the associated relative advantages and disadvantages and who is free to recommend the most appropriate for their client's specific circumstances AND WHO DOES NOT INDULGE IN INTELLECTUAL NEGLIGENCE OR DISHONESTY, is a true adviser.
On 24 March 2017 at 12:47 pm Another AFA said:
Excellent comments. Agree with Rod Severn comment, remove the word Adviser for those representing a product or provider.
Removal of the word Adviser would clear up consumer confusion and be a meaningful, either Financial Adviser or Financial Product Representative (although the word Product could be substituted for 'Provider').
On 24 March 2017 at 1:28 pm Insurance Agent said:
Really - there's so much gum gnashing about what those who promote Insurance products (Life Insurance specifically) need to be designated as, and it does seem to come mostly from those 'outside' the Insurance industry or those who put themselves above and Insurance Agent. Having been in the "Insurance" Industry for 20 plus years I regard myself as nothing more than an Insurance Agent. Any other contrived/over important designation does not, in my view change that fact.
Oh sorry - maybe my view is just an "alternative fact"
On 24 March 2017 at 4:41 pm Murray Weatherston said:
A+ to Dirty Harry above; I couldn't agree more.

At the risk of boring you other contributors with repetition - FGS STOP CHASING THE HARE that MBIE set running with their "if you don't like the name 'financial advice representative', tell us what you'd prefer". ["But don't mention salesperson!"]

It's not the title that these people are called that's the real problem - it's that they will be legally allowed to SELL under the cloak of ADVICE.

Borrowing DH's analogy, a pig that changes its lipstick from red to blue is still a pig.
On 24 March 2017 at 5:10 pm w k said:
mbie/fma FAR vs advisers' choice. let's toss the coin and see which is better - head i win, tail you lose.
On 25 March 2017 at 7:54 am RiskAdviser said:
We know that you can't turn a sows ear into a purse, the whole debate about the lipstick is irrelevant.

Regulate what advisers/salespeople/charlatans can do and bloody well enforce it.

Define what it means to be competent and what is required to give advice or sell a product. The label on the front frankly does not matter.

I go through the process of explaining the market for my clients AFA/RFA/QFE including what each can and can't do and frankly clients do not care.

What they care about is they are getting good advice and someone is going to be there to help them out and look after them.

The designation and label frankly means very little, the actions behind that are what really matter.

Personal insurance adviser is the title on my business card, any changes to designations isn't going to change that, because that's what I do. Give personalised insurance advice across all carriers.

Tash's comments from earlier echos these points.

The label only matters to those that what to convey some sort of status. If it's important to you to say you have a degree or level 5 qualification to give advice, put it on your card and marketing material don't chase meaningless titles.

A better approach to the law would be call yourself what you like, at the same time make sure it's inline with the advice allowed under your licensing.

We already have laws dictating this, they're called the fair trading act and the consumer guarantees acts, misrepresentation is already illegal, designations and the debate about designations is a waste of time, you will never get agreement.
On 25 March 2017 at 10:16 am Denis said:
Those with a legal bent will lick their lips, rub their hands and go "ohboyohboyohbioy" when surveying the feedback document. This is why so few people respond because most of us aren't like that.

The large providers will have legal resourcing, staffed by such people. They will dive in, boots and all, and garner goodwill from the MBIE and the FMA for their keen participation. Well done everyone. That's why they get what they want because they are prepared to engage in this way.

Is there are a way to feed back in a different way?

I may have missed the free form section for feedback where you can comment on the whole "vibe" of the thing rather than specifically on subsection 9.a.(ii)...?

I agree that a person who sells financial products from one provider is not a financial adviser. The salesman at the Toyota car dealership is not a "car adviser".

I would go further to say that a financial services provider should not make out that their own employees are, in any way, financial advisers.
They are sales managers or sales people. Every day they report on the day's sales. That's what they do for a job.

After a brief period of consternation, I think the banks will relish being set free from all of this. They do not give personalised financial advice. They sell products and about 5% of the sales team who are really good at this can do it in such a way that it has the appearance of personalised financial advice. Anybody who has worked on the inside of any of the main banks will know that financial advice is not what they do.

Unfortunately the consultation document declares little appetite for song and dance numbers. If it did I would perform a stirring version of "Let it Go" to the main banks of NZ. You are not financial advisers and - get this - no-one expects you to be. If you do want to employ financial advisers, make them salaried with no new business targets at all. (Pause for laughter). And allow them to refer customers to other providers if appropriate (another big laugh here). Or do nothing at all. Or help them get out of debt. That's what a financial adviser is.

On 26 March 2017 at 4:27 pm Robalan said:
So let me get this right. To be a true insurance adviser I should have an agency with every insurance company (that is if all of them will give me an agency). That would be something like 150 different insurance products (Life, Trauma, IP, Health, Mortgage, Rent, TPD, Redundancy), and each with their own complex policy wordings, which can change from time to time. After I spend 38 hours a week studying the policies, keeping up to date with new products, meeting with BDM's, and going to insurer presentations - I might have 2 hours a week to actually meet one or two clients.

Advisers could not possibly be expected to have agencies with every insurance company as this would make the job impossible. Does an Accountant know every possible solution for the finances of business - yet they still are defined as an Adviser.
On 27 March 2017 at 1:52 pm Denis said:
I have just thought of a word for when a sales process is dressed up as personalised financial advice:

"Moonwalking" - v. def 1. a clever dance move where the performer appears to walk one way but is actually moving in another direction, or
2. a customer meeting that appears to be personalised financial advice but is actually a sales process.

(Most people can't do either of these very well and it can be embarrassing to witness)
On 27 March 2017 at 2:14 pm Tash said:
To Robalan - what do your clients think they are getting? Don't you think an insurance adviser should know what solutions are available for their clients and what they get when they pay premiums. How can you put your clients interest first/act in the best interests of your client if you don't know what is available?

I would have thought someone taking a real interest in giving advise would want to know what all the different insurers offer and how their products and benefits differ. Frankly the 38 hours study you speak of will not be needed every week. Yes it takes some effort, especially in the beginning but if you prefer not to go to this level of effort please do not call yourself an adviser.
On 27 March 2017 at 3:17 pm Ron Flood said:
Let's make this simple. If the word "adviser" or "advice" is included in any designation then that person must be individually licensed and accountable.
On 27 March 2017 at 4:41 pm w k said:
tash, i take it that you know the policy wordings of each and every insurers in the market. and you present and explain all of them to every of your your potential clients - ie, if your client want a life, tpd, trauma and income protection cover, you present information of all the insurers in the market place. i applaud you for that. however, i am not sure how many advisers do that, not me.

i represent a limited number of insurers and i tell my prospects that's all i represent. if they are happy they can deal with me (so far i've had not encountered any problems) and if they want more options, they are free to go to other advisers.

i have gone down the track of giving potential clients comparisons and they ended up with another adviser - i don't get paid for my time and i have bills to pay. so from a biz viewpoint, i'm happy where i am - say to my prospects upfront what products i can advice and sell. if they want more, either they go to another adviser or i recommend them one - so there's no mucking around.

finally, why do i want to represent insurers where i don't give them any biz? won't be wasting their time having me? - i'm not in a habit doing that.

just my thoughts.
On 28 March 2017 at 10:08 am Tash said:
w k. Thank you for sharing.
I know enough about all the real insurance companies to know their major relative advantages and disadvantages (I also know generally what the banks and direct offerings are). I don't know all the wordings off pat but have access to them. I use product rating tools as a comparison guide but never as a reason. I think attending company product launches and training is essential for keeping up with developments.

I think what you do is perfectly acceptable, your clients know what you are offering and what you are not. As long as the limited number of providers you deal with are carefully selected by you to ensure your clients have access to the best solutions then I have no problem with your approach.

What I do have a problem with (and what I think will run foul of the law)is people who hold themselves out as 'advisers' but who engage in intellectual recklessness, they continue to do what suits them and steadfastly refuse to fairly and objectively quantify the value of the products they sell their clients relative to other offerings - this is not the modus operandi of a true adviser.
On 28 March 2017 at 11:53 am Geoff Nairn said:
Are we getting a little precious about the definitions of "Sales Person" and "Advice"? Just look at the farce being played out on the US political stage where we have Paul Ryan (an abysmal Sales Person but a consummate Detail person) unable to convince his own Party on the direction that Donald Trump (a consummate Sales Person but an abysmal Detail person) wants to go. Our clients simply will not act on our advice if it is not presented in a manner which is likely to cause them to proceed to implementation – Advice and Sales are inextricably linked!

An aligned Adviser employed by a Product Manufacturer is just as capable of providing "Advice" as a non-aligned, independent Adviser who can offer a broad array of products; the only difference is the range of solutions (or products) offered to the client.

The best Advisers are also very good Sales People; the crux of the matter is ensuring the correct solutions are Advice centric, not Sales centric. Clients do need to understand whether there are constraints on the range of product solutions an Adviser can offer; to bury the communication of such constraints in page 4 of a Disclosure Statement (which few clients ever read) is disingenuous.

There does need to be a clear differentiation made in the title of an Adviser which communicates whether an Adviser is “Tied” or “Non-Aligned”. Consumers already understand that an “Agent” is likely to be tied to one product supplier – so why not use that terminology?
On 28 March 2017 at 3:55 pm Barry Read said:
Ron - Why should an adviser who's employer provides the advice processes, training and monitoring on how to give advice and limits the advice services, which have been approved by the FMA in the case of a QFE, or Licensed Entity in the future, be individually registered and accountable? If they have followed their employers processes and the advice is found wanting by the FMA then surely its the entity that should be accountable? I agree that the FMA should keep an internal register of all QFE advisers and track ones who do breach requirements and then turn up elsewhere, but if the individual can't have autonomy from the entity over the advice services they give, then how are they accountable for the advice?

On 28 March 2017 at 5:28 pm w k said:
@tash - thanks.

@geoff nairn - i touched on this agent and broker issue before - virtually every consumer understood those terms. but some smart alec is trying to make these two terms obsolete from the english dictionary and by doing so certain profession/s will benefit tremendously from it - clue: NOT financial advisers (who will be the main contributor$).
On 28 March 2017 at 7:11 pm Ron Flood said:
Barry, I totally agree with you but ask that you once again read my two previous posts.

The first post proposes that an employee who works for a Financial Services Provider be called a Restricted Financial Adviser and not be required to be individually licensed/accountable.

My second post proposed that where there was no employer/employee relationship then the adviser must be licensed/accountable.

On 29 March 2017 at 7:04 am Barry Read said:
Thanks Ron, missed that. Agreed that those employed by a product provider need a different designation. And those who rely on their own processes with only support from a licence holder should be individually accountable and registered. Those who rely fully on the licence holder for the process and have very limited individual choice, but are not employed by a product provider should be representatives who are transmitting the entities advice and therefore not individually accountable.

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