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Law changes an imperfect improvement

Changes made to the Financial Services Legislation Amendment Bill before it was introduced to Parliament have been welcomed by the financial advice sector - but some say they did not go far enough.

Tuesday, August 8th 2017, 6:00AM 9 Comments

by Susan Edmunds

It was introduced last week for its first reading and is unlikely to pass this parliamentary term.

A number of alterations were made from the exposure draft that was put out for consultation – most notably to remove the contentious “financial advice representative” category.

This had been criticised as confusing and potentially misleading for customers who might not understand the difference between an independent financial adviser and a financial advice representative working for a financial advice provider and limited to a certain set of products.

The bill replaces the FAR designation with “nominated representatives”, who have the same restrictions on the way they operate. QFE advisers will generally become nominated representatives and some larger financial advice groups may look to become FARs with representatives working for them.

PAA chief executive Rod Severn had been highly critical of the FAR designation. He was pleased with the change.

“It’s absolutely an improvement.  'Nominated representative' is still a bit of a nebulous term but it’s certainly better than financial advice representative, which was going to confuse everybody.

“At the end of the day I don’t think it matters what people are called, how they act is the important piece. Provided the public understand the difference that nominated representatives can only give advice on one product versus financial advisers who can offer choice, we will all be better off for it.”

IFA chief executive Fred Dodds agreed: “It’s better than financial advice representative. It will possibly mean consumers may ask ‘what does nominated mean’ which then will have some interesting responses. And as long as those responses talk to limitations we have made progress.”

Lawyer and former FMA regulatory boss Sue Brown said it was a welcome move. “But I’ll be looking closely at the bill to see if there is a clear distinction in the requirements for sales and advice.”

Brown said she had hoped that MBIE would move away from embedding financial advice rules into the Financial Markets Conduct Act so that financial advisers could understand their requirements without the need to take expensive advice or become overly reliant on lawyers.

Industry commentator David Whyte said there was now no provision for nominated representatives to work for more than one financial advice provider. “How does this ‘ensure consumer shave access to the advice they need’ or avoid imposing ‘barriers to innovation’?”

The client-first duty had also been criticised as unworkable because it originally said it applied to any situations where an adviser was aware of a conflict between the client and “any other person”.

That has been amended to “associated parties”.

Tags: David Whyte financial advisers Financial Markets Conduct Act Financial Services Legislation Amendment Bill Fred Dodds IFA MoBIE PAA QFE Rod Severn Sue Brown

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Comments from our readers

On 8 August 2017 at 7:16 am Murray Weatherston said:
I sincerely hope the discussion progresses beyond "goody, they've changed the name financial advice representative to nominated representative" heavens above, you could have found that out without even reading the Bill.
Cynical me says that change is merely a rabbit set to draw the hounds away!

@Sue Brown the sales vs advice battle was lost ages ago. But it's hard to see where the battle actually took place.
On 8 August 2017 at 9:18 am R1 said:
I agree Murray.

Now is the time to contact the minor parties and bring them up to speed on what this government is trying to do at the expense of voting investors. They way the polls are panning out it may only need one of the minor parties to pick this up to ensure we have a regulatory environment that puts investors first. I would expect organisations like PAA/IFA and the like to take this up.
On 8 August 2017 at 9:37 am dcwhyte said:
@Sue - I've read through the Bill a couple of times and even with my limited capacity to understand the legislative style, I can't see anywhere in the text that the need to distinguish between sales and advice is to be enshrined in the Act.

I'd love to be proven wrong.

And Murray is correct - there was no battle, not even a skirmish, and certainly no debate.

The so-called "consultative" process, so endearingly referred to by the Minister at the opening of Conference, was non-existent on the sales v advice issue.

This had already been decided (as had entity licensing) and it counted for nothing that there was a strong body of opinion expressing support for such a distinction in the 113 or so submissions made in response to the Exposure Draft.

That said, and accepting that we failed to convince Officialdom, Advisers should not give up.

Educating the consumer and promoting the value of advice are central themes for the strategy of the new body Financial Advice NZ.

Unless the process of forming the new entity is entirely absorbing resources, there should be a proposal tabled to mount a campaign of awareness on what Nom Reps do versus what Financial Advisers do. This needs to start now in preparation for the day when reality hits the financial services industry. It may seem like a long way off - it will be here before you know it.

How about a campaign along the lines of -
"Your employees in Wellington don't want you to know the difference between sales and advice. We think you should. Someone providing advice is acting on your behalf - someone selling products is acting for their employer. See a Financial Adviser and test the difference".

I dislike the provision that restricts NomReps from offering their services to a number of licensees - this is a throwback to the old tied agency system. Also, the restriction that a Financial Adviser cannot act as a NomRep in another commercial relationship dilutes the intent to remove barriers to innovation and make advice more available.

Wiser heads than mine will no doubt comment more incisively on the Bill, but I doubt that this will have any effect. MBIE simply does not listen to the Industry - at least it listens to, and seeks support from, the Big End of Town only.
Just as the promise to promote AFAs was abandoned after FAA was introduced, the Minister's exhortations of a level playing field cannot be believed.

It is therefore up to Advisers and their representative organisations to go directly to the consumer with their message that advice from a Financial Adviser represents the best path available to the consumer to help get their financial affairs organised properly.

No doubt Brent will have some withering comment on fees, poor SOAs, etc., but in this situation, a start has to be made somewhere. Sitting back and complaining about what ails the Advisory Industry will be of little interest to consumers - and there's work to be done!
On 8 August 2017 at 11:35 am Brent Sheather said:
Hi David

Unfortunately I think my bleating on Good Returns is pretty much a waste of time. It embarrasses the FMA and the MBIE but they don’t make the law although they may interpret it badly. The decision makers are the government and they have been captured by the banks. That is perfectly clear to anyone with half a brain. Therefore the only way we are going to get any results here and “put client’s interests first” where that is defined as how any reasonable person would define it is by changing the government. Do not vote National.
On 8 August 2017 at 12:03 pm Headmaster said:
Goodness me, Brent, I suspect that you might already want to take back your extraordinary exhortation of "Do not vote National".

That is hardly a thinking response to the release of the Bill, which other parties have (albeit conditionally) supported.

Taking a wider view, advisers really ought to spare themselves all this anguish and accept the fact that they are becoming increasingly redundant by the day. Most people don't want to (and don't in fact) deal with advisers anyway.

We are facing a fast-approaching future where computers will accomplish all of the tasks which human advisers can perform, and do it more reliably and honestly.
On 8 August 2017 at 2:43 pm Brent Sheather said:
Hi Headmaster

Given your background and what the National party has done to the education system I would have thought you would be sending a message of support. However my “do not vote National” comment results from all the other bad legislation that National has visited upon the public as regards financial services and the fact that many National Party politicians seem to create bad legislation legitimising industry bad behaviour then miraculously turn up on the boards of the companies that the bad legislation subsidises. I guess that’s the payoff.

As regards your view that advisers are becoming redundant – that’s not our experience at all. One side effect of fake news is that people seem to value the truth when they can find it.

Regards
Brent
On 9 August 2017 at 7:13 am Murray Weatherston said:
The 2008 Act was a tentative step forward to professionalise the financial advice industry, with the introduction of individual authorisation for investment advisers.
The 2018 Act will be seen as a giant leap backwards to deprofessionalise the industry. In order to lessen the job for the regulator, individual authorisation is completely removed. From 2019 for new advisers and existing RFAs and from 2021 for existing AFAs, it seems it will be left to each of us to self-determine whether we qualify as a "financial adviser" [a generic term really], and then link ourselves to a FAP - subject only to audit by FMA in terms of possible referral to FADC if they think we have made the wrong assessment.
The Bill as it stands is a monumental victory for the VIOs and BEOT who are given free reign as Sir Anthony Mason CJ so eloquently put it to sell their products under the legalised disguise of advice, and a sad defeat for the smaller adviser.
The increasing costs of compliance IMO will result in reduced access to advice from independent advisers, as increased minimum size requiremnts will apply in the SEOT. The gap will be filled with pret-a-porter sales advice by the BEOTs' nominated representatives and robo-sales offerings.
Well done MBIE.
On 9 August 2017 at 9:57 am dcwhyte said:
It's also a sad defeat for consumers, many of whom will be left to the tender mercies of product providers.

The outcome of that particular pathway in Australia has been well documented elsewhere. NZ is now on the cusp of replicating the Australian structure in the (futile) hope that the same experience won't recur here. And indeed, it may not - but that will only be due to the legislation being framed in such a way as to protect the interest of large financial institutions more effectively than in Australia.

This entire complex and anti-consumer mess could have been avoided if the original intention had been delivered, i.e. every person offering financial advice to consumers has to be suitably qualified, is responsible for, and legally liable for, the advice provided - irrespective of employment status.

The waste of money and resources on building regulatory infrastructure, committees, draft proposals, consultants, etc., could have been more effectively allocated to supervision and oversight.

Despite the self-congratulatory tone from Government on getting the Bill into Parliament before the election recess, this is a shambles with the consumer no clearer or better served and/or protected.
On 9 August 2017 at 10:06 am w k said:
i promised to refrain from commenting. sorry, i can't help but broke the promise.

@dcwhyte: "NZ is now on the cusp of replicating the Australian structure in the (futile) hope that the same experience won't recur here."

"Insanity: doing the same thing over and over again and expecting different results." einstein.

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