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Consumers want qualified advice

A Financial Markets Authority report on consumers' experiences with financial service providers shows it is vital that a qualification is required for everyone offering regulated financial advice, Financial Advice New Zealand says.

Tuesday, January 8th 2019, 6:00AM 3 Comments

The regulator polled New Zealanders about their experiences with financial services.

Eight in ten New Zealanders said they had at least one investment. KiwiSaver was the most common.

The FMA found that most were relatively satisfied with their financial providers and felt they were treated fairly and with respect.

The survey showed that those with an investment portfolio managed by a financial adviser had higher trust in their financial provider - at 86% - compared to 67% for those with only KiwiSaver accounts.

But only 30% of adviser clients strongly agreed that the information they were given was easy to understand. Only 35% strongly agreed that fees were explained clearly - and 3% strongly disagreed.

Only 40% strongly agreed their adviser had the skills and experience to help the first time.

Financial Advice NZ chief executive Katrina Shanks said the report was welcome. "It is essential to seek the views of Kiwis so the sector can consistently act on areas for improvement.

"Overall the report is positive, but does highlight areas for improvement such as having the right skills and expertise to assist first time, being able to explain fees clearly, and having the knowledge to help consumers understand the appropriateness of certain products.

"Advisers play an important role in these areas: they provide expert advice in their field - the first time and throughout the client relationship; and communicate often complex financial concepts in a way that ensures clients properly understand their options and choices, the detail such as fees, and what is appropriate for their needs."

She said the report highlighted the importance of improvement of skills, knowledge and competency in financial services.

"Financial Advice New Zealand has advocated for the requirement of a qualification to be obtained to provide regulated financial advice; this report bears out that necessity to lift consumer outcomes."

FMA director of strategy and risk Simone Robbers said explaining fees and whether a product was appropriate were the areas that had the biggest impact on how consumers rated providers.

Tags: Financial Advice New Zealand FMA

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Comments from our readers

On 8 January 2019 at 9:13 am Brent Sheather said:
This is Financial Advice talking its own book. Whilst qualifications ostensibly make sense they will not necessarily “lift consumer outcomes” as there are two realities that are ignored. Firstly, most intermediary organisations will not purchase CPD that reduces their profitability. Secondly, any advisor who has actually learnt anything of value will not be able to exercise those skills if it conflicts with the firms objectives of maximising profits. Two examples:

• Best practice as evidenced by superannuation funds around the world, NZ Super Fund, ACC is to minimise the expenses associated with investing however most vertically integrated organisations recommend their own relatively high cost products. Any bank employee who tried to recommend low cost products in front of the banks own products would get transferred within a week.

• Diversification is the only free lunch there is but many advisors just recommend 5-10 stocks in NZ and Australia because this maximises profitability and creates an illusion of skill. Any advisor working for such a firm who recommended low cost ETFs like the Super Fund and ACC use wouldn’t last long.

By the way an advisor should not just “explain the fees” to clients they should advise why that product was recommended in the context of its fees where context includes competing products and prospective returns from the appropriate asset class. This is the difference between “sales” and “advice”.
On 8 January 2019 at 12:14 pm dcwhyte said:
Agree with most of your points, Brent.

But the main issue is the FMA research backing what many of us (including Katrina) have been saying that ANYONE offering regulated advice should have a minimum recognised educational qualification.

If an adviser has the skills/knowledge and can't/won't use them, the outcome for the consumer is at risk.

But if the adviser does not have the skills/knowledge, you're pretty much guaranteed a poor outcome.

A significant number of submissions to the Select Committee - over 30% - specifically stated the need to distinguish between sales and advice.

We were ignored - MBIE had already decided by May 2016, according to their Regulatory Impact Statement, that no such distinction was to be embodied in FSLAB. MBIE wished to avoid the potential for creating different categories of adviser as contained in the FAA.

However, the draft Code of Conduct proposes that a licensee has the discretion to provide a Nominated Representative with the equivalent standard of educational qualification as that required by a Financial Adviser. How's that for creating two different categories of "adviser"?

Educational qualifications are no guarantee of probity - as the legal and accounting professions amply demonstrate. But there has to be a line drawn somewhere.

I'm not sure if Level 5 is appropriate as Mike Naylor suggests elsewhere, but I am sure that the consumer is put at risk if faced with unqualified salespeople masquerading as advisers/ nom reps - whatever.

Happy New Year - all the best for 2019.
On 8 January 2019 at 3:19 pm JPHale said:
Agree with Brent and David, holding a qualification doesn't imply that the person is able to provide competent service as a result.

Many studies in the US have shown students will learn the information to regurgitate and pass the exams but promptly forget it when it conflicts with their fundamental beliefs and philosophies when they return home and join the workforce.

Qualifications are just one part of the equation, culture and philosophy of the organisation is a more significant driver of behaviour, qualified or not. As we have seen in the past.

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