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Degree 'not the answer to industry's problems'

Providing high quality financial planning advice is not that hard and a degree won’t solve the issues present in the industry, an adviser is arguing.

Friday, April 20th 2018, 6:00AM 5 Comments

by Susan Edmunds

Former Australian financial services lawyer and now New Zealand AFA Sonnie Bailey made a submission to the code working group in response to its recent proposals, which included a degree requirement for people offering financial planning services.

Bailey said, while in Australia, he worked extensively with financial advice businesses, including reviewing thousands of their client files.

He said increasing educational requirements, as the working group has indicated it wanted to do, would be an easy way to show that something had been done but was unlikely to make any real difference.

"I understand that many of the members of the code working group have not directly provided financial advice. So I want to be emphatic and make something clear that is based on my direct, personal experience. Providing high quality financial planning advice is not that hard."

Higher education standards would increase the barriers to entry in the industry and push people to offer product advice rather than the full financial planning services that New Zealanders really needed, he said.

“It is directly contrary to the legislative purposes of ensuring the availability of advice and avoiding unnecessary compliance costs.”

He said the biggest barrier to providing high quality advice was not education but escaping commercial pressures.

“These include being aligned with financial product issuers and remuneration structures incentivising behaviours that may not be in clients’ best interests.

“The problems associated with the financial advice industry at this level are largely unrelated to educational standards. The problems are to do with incentive structures and commercial arrangements which have traditionally seen a greater focus on sales than providing quality advice.”

“The fresh blood that comes in will be more likely to enter the industry through larger institutions, where they will be inculcated with the institutional and systemic If I were cynical I would read this distinction between ‘product advice’ and ‘financial planning’ services – and the associated higher levels of educational requirements/barriers to entry for the latter – as a way of continuing to allow sales-based product advice (which tends to be better for vertically-aligned business models and financial product issuers) to be easier to provide than holistic, client-focused, strategic advice.

“If I were really cynical (which I’m not, although others could be less charitable), I would point to this distinction as an insidious example of regulatory capture where vertically-aligned business models are favoured over independent advice models.”

Tags: Code Working Group qualifications

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Comments from our readers

On 20 April 2018 at 7:54 am Murray Weatherston said:
Great comment Sonnie.
Another light on the VIOs largely doing sales is very welcome.
On 20 April 2018 at 9:12 am Brent Sheather said:
Yes fantastic effort from Sonnie. I particularly like the comment that “the biggest barrier to providing high quality advice was not education but escaping commercial pressures”. Why haven’t the FMA realised this? Why hasn’t the CWG realised this? Why hasn’t the MBIE realised this? In my opinion they are either incompetent, captured or both. Probably both. My view is that this is a legacy of a previous government full of banksters and aspiring banksters and their covert instructions to government departments not to make any moves to constrain banking profits. The new Labour government has a chance to roll back the corrupt bargain that exists between government and the finance sector. Let’s hope Mr Faafoi grabs the opportunity.
On 20 April 2018 at 9:21 am retired blogger said:
The biggest barrier to providing high quality advice was not education but escaping commercial pressures

Why haven’t the FMA realised this?

Why hasn’t the CWG realised this?

Why hasn’t the MBIE realised this?

Why ?

Aspiring banksters beware

You are treating NZ mums and dads appallingly

But in time you you will be exposed and removed
On 20 April 2018 at 10:35 am Denis said:
“The problems associated with the financial advice industry at this level are largely unrelated to educational standards. The problems are to do with incentive structures and commercial arrangements which have traditionally seen a greater focus on sales than providing quality advice.”

Bravo. This is it in a nutshell.

On 20 April 2018 at 11:05 am Paul Flood said:
Sonnie writes: "If I were cynical I would read this distinction between ‘product advice’ and ‘financial planning’ services – and the associated higher levels of educational requirements/barriers to entry for the latter – as a way of continuing to allow sales-based product advice (which tends to be better for vertically-aligned business models and financial product issuers) to be easier to provide than holistic, client-focused, strategic advice."

Don't forget another main aspect of the proposals from the CGW - that both the general and particular standards of competence, knowledge, and skill required for "financial planning" can be obtained "in aggregate".

So, in addition to the higher requirements for many of those (non-AFAs) operating in the SEOT, the thousands of nominated representatives in the BEOT will all of a sudden be qualified to engage in "financial planning" in virtue of being cogs in a machine that meets the requirements "in aggregate".

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