Flight to big providers 'possible unintended consequence'

OMG, how can something that is perfectly foreseeable be "an unintended consequence".
Try this definition from Wikipedia:"In the social sciences, unintended consequences (sometimes unanticipated consequences or unforeseen consequences) are outcomes that are not the ones foreseen and intended by a purposeful action. The term was popularised in the twentieth century by American sociologist Robert K. Merton."
Policy analysis seems to have a different dictionary than normal usage.
A "necessary casualty of war" would be a more apt description of the probable flight to the big end of town.

I have to agree with Murray - this is a rubbish proposal with clearly defined & predictable outcomes. Furthermore, it contributes to a fragmented & unskilled workforce distributing “advice” to an unsuspecting consumer. Perhaps the Working Group could recalibrate their thinking by looking back at the consequences through the consumers lens (aka client centricity)

I can only agree with Murray. As a newcomer to the industry, the requirement to have some form of qualification under the new Act seemed to me, a given.
As we at Newpark have progressed Level 5 education for our members I have been amazed at those that constantly refer back to 2007 and the decision quash the need for a qualification. It was a different time and a different Government and at the end of the day, education is never wasted.
The draft amendment bill:
"A financial advice provider that engages 1 or more financial advisers or nominated representatives to give regulated financial advice must take all reasonable steps to ensure each of its financial advisers and nominated representatives complies with ...."
To me, Level 5 was and is a reasonable step. So we intend continuing to educate our members as well as developing "in aggregation", another reasonable step.

Yes, good work from Murray, again. The sad fact about this whole process is that most of the submissions and lobbying on the subject is done by lawyers whose brief is “do whatever it takes to safe-guard our flawed business model”. Unfortunate too that many of the lawyers who get involved wouldn’t know good advice in the financial advisory space if they fell over it and in any case doing the right thing is completely irrelevant to their objectives. The proposal looks like another variant of “doing the right thing means different things depending on where you work”.

Why can't the existing Code be extended to cover all none-AFAs with some ethical standards and qualification requirements added?

The concept of 'product advice' is particularly worrying and reflects the ongoing contortions that some folks embark on to accommodate the BEOT.

If every financial adviser had to be suitably qualified (L5 or L6), irrespective of their employment status and was held responsible for advice provided, the consumer would have a better chance of understanding the industry.

As it stands, if aspects of this document are adopted, confusion will continue.

I also dislike the practice of setting questions to be answered. Sharing views means just that - not answering questions set by the authors of the document.

It's particularly disappointing to note the absence of one of the most oft-quoted issues in the 71 submissions to the Select Committee, that of Sales v Advice. In fact, the Paper attempts to conflate product sale and product advice thus opening the door for product floggers to be regarded by the consumers in the same light as financial advisers. Disappointing.

Can I urge readers to continue to voice their thoughts on this blog. Hopefully the Code Committee will come to understand the sentiment of the industry that they’re attempting to design. Either speak up, or don’t grumble when proposals such as this are actioned

Pragmatic I don’t wish to offend but I really doubt the Code Committee is going to take into consideration comments from anonymous writers on this blog. Credit to Murray and Brent who put their name to comments. I would suggest if you want to be heard we need to do so but direct non-anonymous submissions to the Code Committee.

I've decided to copy three comments from a previous story - two mine and the other MPT heretic - to ensure they don't get overlooked.

BTW very sound advice from Pragmatic - I don't really care whether people use own names or pseudonyms - it's the content that counts in my book.

A. On 13 March 2018 at 6:11 am Murray Weatherston said:
An immediate personal reaction - 5 things.
1. The overarching theme “good advice outcome” seems not to mean what I think will be the most likely public interpretation taking the words at their simple normal meaning. That’s hardly clear and effective communication.
Par 52 says “it is important to emphasise that a good advice outcome does not mean the product being advised on performs well.” It seems to me that the concept CWG is describing is more like a good advice process, but that phrase doesn’t have a sexy ring to the consumer. [In the medical field, would we describe a “good advice outcome” as one where the doctor followed good process but the patient died? Or in architecture where the architect followed good process but the building was hopeless for the purpose for which it was designed?]
2 The use of “if not, why not” in the competence section is puzzling. The context in which this is usually used is where a regulator sets down a set of recommendations, but invites users who wish to depart from them to explain why they have departed. But in the draft code, where the requirement is you need A B C and D as a default position, it seems (larger) entities will be allowed to argue for an equivalent (e.g in house training programmes). That doesn’t seem to me to be “if not why not.” It’s more like “Alternate Solutions” in the Building Code.
3. The phrase “in aggregate” gets a solid workout. It seems to mean the sum of what the licence holder entity (the financial advice provider) and the person who provides advice on behalf of the licence holder know and do. That’s a pretty complex concept to measure.
4. CWG’s description of “product advice” and “financial planning’” (a widening of the Bill’s “investment planning”) seems to be further legitimisation of sales masquerading as advice.
5. The non-product selling RFAs (i.e. those who advise as opposed to sell ) are going to love the requirement for a degree in a relevant discipline, Level 5 Core and Specialty and Level 6 financial advice papers. It will be easier to stop advising and become simply a product flogger – need only Level 5 Core and Specialty. Is that really what the reforms are intended to achieve?

B. On 13 March 2018 at 6:14 am Murray Weatherston said:
One other thing - the timetable seems to have slipped by another 3 months - so is transition day now 1 August 2019?

C. On 13 March 2018 at 1:35 pm MPT Heretic said:
Good points as usual Murray but the CWG is between a rock and a hard place. They are regulate to ensure 'financial advice' is made available to the masses and clearly they have been told by providers that they cant do that without first classifying product advice as financial advice, and secondly ensuring FAPs dont have to employ Financial Advisers to deliver said advice.
Take KiwiSaver as an example, how often have you heard someone from MBIE/FMA/Govt opine that KiwiSaver is simple and doesn't require personalised advice. Despite it being a wrapper for pretty complex (for the general public) investment options which will impact directly on the current and future financial situation for the majority of Kiwi's. Thats before investors make their own stupid decisions, chasing returns or trying to time markets. Thousands of NZers are already worse off in KiwiSaver that they would have been by being in default funds but according to the CWG that would be an ok outcome as long as the FAP has shown due process around their product advice. They can completely ignore the end outcome for the client as Murray rightly points out

I am neither a product provider nor a financial planner, but I will become a retired investment adviser if the current regulatory trends continue.

It may seem narcissistic to declare that this is a poor outcome (or unintended consequence) for the public, but I think its true for a small subset of people.

I became deflated with the new Code process when Angus confirmed to me that it would be longer, and thus more prescriptive, than the old Code. Too much prescription will be its failing.

I thought we were onto something when there were proposals to prioritise 'Client First' and an ability to display that this occurred, but this hope has been cruelly dashed.

Clearly some good dialogue forthcoming here. However, I would caution criticising the first attempt at a revision of the Code. Write a submission which has far more weight and credibility than just leaving your thoughts on a blog. It is more important to send in a submission on the critical issues - although I doubt some who write on this blog will bother. Is also important is to acknowledge the depth, breadth and diversity of Advisers and Adviser Business models. It is impractical and irresponsible to think that you can have a one size fits all for some sectors. This will only result in unintended consequences. The Code Committee has put together what should come as no surprise for a first draft. That is merely an observation, not a criticism. NOW is the time for the Adviser fraternity input. I wonder how many submissions from approximately 8000 Advisers will be received - less than 5% I would expect. Now if we actually achieved 20% submission ratio that would be a substantial voice to influence change. Those of you who sit in Adviser Groups - you are an individual so have your say. No individual can say they represent the voice of the Adviser fraternity, but all Advisers together can make a world of difference, not only to the lives of New Zealanders, but especially to the world we operate within. So to those who write on this blog, I challenge you to encourage another twenty Advisers to write a submission. Please let's all contribute to bring about a positive change.

Thanks Bruce Cortesi.
Idea: Why doesn't the Code Committee re-calibrate to include more practicing AFAs & RFAs... which can better represent the interests of the industry?
I'm sure that it comes as no surprise that human nature means that there will undoubtedly be a shortfall of formal submissions.

Hi Bruce
Very good comments - at last someone sees the glass half full. I agree that the only way to constructively add any value from an advisers view is make a submission. If the advisory populous don't then they deserve what they get At least try to make s difference.

This seems to be part causing all the excitement. I see 'grandfathering' here, I wonder if it's just me? "We are considering as minimum standards of particular competence, knowledge, and skill that must be demonstrated when financial advice is given that the Financial Advice Provider and any Financial Adviser or Nominated Representative involved in giving the financial advice must have, in aggregate:
 For product advice, the competence, knowledge, and skill to give the financial advice to the minimum standard reasonably expected of an individual who has attained the New Zealand Certificate in Financial Services (Level 5). Level 5 is the reference point: the Financial Advice Provider must decide how it achieves that level in aggregate – for example by using an if-not-why-not approach. Our focus is on the outcome not the input: the client experience must be equivalent to that given by a person holding Level 5, not that each person giving the advice necessarily has that qualification.
 For financial planning, the competence, knowledge, and skill to give the financial advice to the minimum standard reasonably expected of an individual who has attained (i) a Bachelor’s degree (at NZ Level 7 or higher) majoring in financial planning, accountancy, business, commerce, economics, finance, or management, and (ii) a qualification (possibly a Level 6 certificate) in financial planning and advice process. Again, an if-not-why-not approach may be used to demonstrate how the outcome is equivalent.
 In both cases, persons who qualified under the previous regime as AFAs would be recognised as meeting the minimum standard. We ask how RFA experience could be recognised in a measurable, quantifiable way."

@Pragmatic
The Code Committee doesn't appoint its own members. The members are appointed by the Minister, presumably on the advice of MBIE.
What you are proposing would require MBIE to admit it made a mistake initially when it set up the CWG. Remember that MBIE after having called for nominations, specifically excluded from consideration anyone currently associated with an adviser association - the most obvious place to have gotten practising AFAs and RFAs from. (I say currently deliberately, as the CWG Chair had recently ended a term as Independent Director of PAA)
Rather MBIE loaded the CWG with executives of VIOs - so some of us are not at all surprised that the draft would seem to be VIO-centric. To be fair, those executives cannot be expected to have any idea about what happens in non-VIO adviserland.
Most of us didn't know who the one AFA appointed was, but when we checked we discovered she was a recent migrant, had worked at the FMA and then moved to a large MIS provider. I see she has since moved to a big 4 accounting practice - the sceptic in me suggests they must be about to set up a financial adviser consultancy arm.
I'll leave readers to draw your own conclusions from all of this.

Murray. It has become very obvious that MBIE do not have the resources or manpower to police the regulations they are required to enforce.


They seem to want to pass the buck and have large FAP's take on this responsibility and force small firms/Advisers (via the Code Committee) to jump through ever increasing red tape or submit and join the VIO'S or large groups.

@Ron
I don't disagree with your sentiment.
However you have mixed up your government agencies. MBIE writes the regulations - technically their Minister - but the policing/enforcement is done by FMA, with the judiciary being the FADC as far as financial advisers are concerned (but not nominated representatives).

Yes Murray,thanks for for that. I forgot that the FMA are the 'police' and that MBIE are merely the cause of the train wreck.

@Bruce Cortesi
I wonder if I can get you to accept a challenge.

You have an undoubted leadership role in the industry. You are Chairman of PAA and you are also a Director on the Establishment Board of Financial Advice New Zealand.

You know that in the past I have been critical of the efforts of both PAA and IFA in your advocacy efforts on behalf of your members – I have often voiced the opinion that I feel you guys have been more interested about trying to carve out a role for your organisations in the regulatory framework rather than standing up for your members.

Now we are at or close to the point where the rubber will hit the road. Decisions made over the next few months will shape our industry for a long time ahead.

I don’t think I have ever seen or heard you articulate your view as a leader on the good and the bad of this draft Code. You exhort advisers to submit (admirable aim), but I think you are strangely silent on what you think they should submit about.

So Bruce, my brother-in-arms, my challenge to you is simple.

1. What are the 5 things that you really like about what is currently being proposed by CWG in this its first attempt at writing a new Code?; and

2. What are the 5 changes you would like to see made to what they appear to be proposing to improve the situation for the advisers you represent?

I am sure Philip will be only too willing to give your views exposure on Good Returns

Both fair questions Murray and perhaps the same should be asked of Michael Dowling as the Chair of IFA?

It seems clear to me that there is a significant level of dissatisfaction with the first draft by the CWG. While I fully agree with the majority of the comments made by most of you, this is not getting us any closer to a better outcome for practitioners and therefore clients. A clear definition of “Financial Planning” is likely to assist along with clarity around where “Product Advice (sales) morphs into Financial Planning” and whether they are on any form of continuum that can be graduated.
When MBIE appointed the CWG members, as Murray has said they excluded practitioners involved in our profession in favour of BEOT VIO’s representatives, most likely in the misguided premise that they could have a greater impact if they could get them under control more easily, as we have seen from the Aussie experiment and subsequent Royal Commission, this is erroneous. But we have what we have, and we need to work with that.
That being said, can I suggest that we look at what is acceptable in the release and put it aside then look to promote the modification of the areas that are unacceptable. It is only with pragmatic and clearly articulated arguments will we be heard above the VIO crowd. For example: I have no issue with the concept of a ‘safe harbour period’ allowing time for each practitioner to gain the requisite qualifications for their area of advice and this may take the edge off having qualifications “in aggregate”.
We do need to attend the CWG consultation meetings and voice our dissatisfaction with the current position but also need to provide genuine alternative positioning both at these meetings and in submissions as numerous as we can. Bruce has a point; a greater number of small entity and individual submissions must carry greater weight than simply leaving it to the professional body’s on their own, we need to overwhelm that BEOT submissions.