Investments
The Code – issues for advisers (Part One)
Tuesday 17th of April 2018
This commentary therefore contains his personal opinions. It is not written on behalf of the CWG and is not intended to reflect CWG views.
Where we are now
Before launching into issues around the new Code, it is important to look at where we are now. Part One of this commentary needs to begin with some background while Part Two will address what I consider are key topics to be considered by retail advisers (which will hopefully encourage further adviser submissions).
To start with, what parts of the current regulatory regime are lacking? What needs to be fixed? Here are five key issues commonly identified by advisers:
| Issue | Description | Can the new Code deal with this? |
| Prescriptive documentation | Required adviser documents are too detailed and clients often don’t read them. Is there a better way to share information with clients? | Yes, the CWG can help here, although note that RFA and AFA disclosure documents are not set by the CWG. MBIE is separately working on new disclosure rules for advisers (MBIE issued a discussion paper on adviser disclosure with comments closing on 25 May – see link at the end). |
| Sales vs advice | There are a range of business models providing financial advice in NZ. These include advice businesses selecting what they see as the best product in the market, businesses choosing product from a small number of providers and businesses only making their own product available. Unfortunately the later model (where the provider manufactures and then advises on its own product) is heavily entrenched in NZ financial services. This model may result in a service which has more in common with “sales” than “advice”. | No, this is a matter for the Bill and Select Committee. The designation of “sales” vs “advice” is outside the ambit of the CWG. However, one point should be noted when comparing the current Act with the proposed Bill. The current Act requires clients to “agree” scope with an adviser while the new Bill proposal requires scope and limitations be “understood” by the client. This change implies providers will need to be very clear with clients where “advice” is minimal and is more like a “sale”.Many advisers are concerned how the “sales vs advice” issue can be best managed for consumers, and we may look at this further in part two of this commentary. |
| Exemptions from giving advice | Various professions (such as accountants and lawyers) can give financial advice yet nothing in their training prepares them for this. The fact these other professions fall outside the giving of regulated advice is seen by many advisers as problematic for consumers. | No – although it should be noted that the CWG agrees with the advice industry and has asked the Select Committee to tighten the exemption. |
| Lack of guidance on “good behaviour” | There appears to be uncertainty around where boundaries may sit. A simple example is the “client first” duty – there are a variety of views on exactly what this means in practice and how it is applied across different business models. | Yes – although there is always a tension between creating a prescriptive Code (as big as a telephone book but with greater certainty and exactness) vs a principles-based Code (shorter in word count but having less certainty). The CWG has submitted to the Select Committee asking for confirmation that the Code can include guidance and examples which will provide more certainty with interpretation. |
| Financial advice as a profession | The industry is not currently seen as a true profession by many advisers and by consumers. | Yes. This is a long-term objective widely shared by advisers and adviser associations. The new Code can help encourage positive change. |
Want to read the full article?
Click the button below to subscribe and will have free unlimited access for a limited time to full article and all other articles on the site.
You will also be able to comment on articles on Good Returns.
Latest News
3 min read
3 min read
2 min read
4 min read
