Bank advice concerns questioned
Advisers are being told they should consider how independent they really are, before complaining about bank advice.
Thursday, September 11th 2014, 6:00AM 
20 Comments
by Susan Edmunds
Many advisers have raised concerns about bank staff pushing their own products with little advice.
Claire Matthews, of Massey University, said an element of that was being driven by concerns that banks were taking business from advisers.
She said bank branch staff were limited in what they could advise on but that was not necessarily a problem for consumers. “I’m not sure how many average consumers would expect bank staff members to tell them about anything other than their own products.”
Matthews said it could be worth considering a requirement that banks must include a statement saying that while they suggested a particular product, consumers should be aware there were others in the marketplace. “But consumers are unlikely to want to have to pay for advice. The whole point of having to go to an independent advice and get a broader range, they have to talk to someone else and that’s another step in the process which people may not want to take. Having the bank do it all for you in one step is one of the advantages, part of why they choose the bank.”
Regan Thomas, of Wealth Design, said among the wider AFA world, truly non-aligned advisers were scarce. “In the eyes of a consumer is an adviser who is in a national network/group or part of a nationwide brand any different than a bank adviser? This is not a criticism of national groups, just something to think about.”
Brent Weenink, of BBY, said banks were traditionally not fiduciaries, so at an institutional and cultural level were not well-equipped to deal with fiduciary obligations such as avoiding conflicts of interest. “They accept these obligations when they start to give personalised financial advice, but the extent to which they embrace them institutionally is harder to gauge, particularly when the advice is being proffered by staff that are otherwise acting in a traditional banker capacity.”
He said the disclosures and advertising of the banks tended to focus on what they did, rather than what they did not do. “It should for example be clear to a consumer not only that the bank is only offering bank product, but also that it is not offering advice on products offered by other parties; or on products such as real estate; shares; private equity; derivatives.”
We discuss the issue further in the next issue of ASSET.
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Comments from our readers
On 11 September 2014 at 10:02 am LPL said:
Claire is correct - there are concerns that the banks are taking advisers business.
The issue though is that an AFA is held to a certain standard. Banks aren't using AFA's to switch clients therefore this isn't a level playing field.
Banks should not only have to provide a statement as Claire suggests, that statement should also clearly provide some key information about their particular fund in comparison to others.
On 11 September 2014 at 10:31 am Gavin Austin ABCompliance said:
Brent- again you are taking the high ground and trying so show that you know it all, but in this case you don’t. Your assertion that it is illegal in the UK in your words “ In the UK the FCA which is equivalent of the FMA, but with independent directors, has determined that an adviser is breaking the law if it does not consider the entire universe of products when advising retail clients. That’s logical and sensible. Funny that one practice can be illegal in the UK but best practice in NZ. The full story is somewhat different. For someone who gloats about the wonderful research he uses and the fact that in his opinion there is no CPD offerings in NZ worth is attention, is a bit rich to say the least.
So here are the facts Brett - if you are offering yourself to the retail public as an independent adviser you are correct but in the UK there are different categories of “Adviser” the one you seem to have missed is the Restricted Adviser (very similar to bank or other QFE advisers). Here it is - Restricted advisers
A restricted adviser or firm can only recommend certain products, product providers, or both.
The adviser or firm has to clearly explain the nature of the restriction. If you are not sure you should ask for further information, but some examples of restricted advice are where:
• The adviser works with one product provider and only considers products that company offers.
• The adviser considers products from several – but not all – product providers.
• The adviser can recommend one or some types of products, but not all retail investment products.
• The adviser has chosen to focus on a particular market, such as pensions, and considers products from all providers within that market.
Restricted advisers and firms cannot describe the advice they offer as 'independent'.
This information is easily available from the FSC website – maybe you could read it sometime Brent. Preferably before you rush into print.
On 11 September 2014 at 11:02 am Pragmatic said:
Unfortunately the current practices of banks are the next slur for the NZ financial services industry. As has been witnessed by the CBA event in Oz, the entire industry then gets tarred with the same brush.
Whilst NZ banks are a very big target for the FMA to go after, it would solve a longer term systemic issue for the industry if consumers were made fully aware of the vested interest that occurs at their expense
On 11 September 2014 at 12:31 pm graemetee said:
There seems to be an assumption that banks only use RFAs, provide class service and not AFAs providing personalized service. I doubt the public that Claire is referring to are that up with the finer points of the law and that is a problem for consumers. But I think the assumption is wrong and AFAs that work for banks are in danger of running afoul of Code Standard 1 for a start. But then the whole FAA was designed by a now banker so I don't think they will really have a problem. On 11 September 2014 at 12:53 pm Richard said:
Brent
Can you please give us some guidance as to how an adviser might practically "...consider the entire universe of products..."?
Thanks
On 11 September 2014 at 2:14 pm Brent Sheather said:
Hi Richard
I have no idea how an adviser could compare the entire universe of products but it seems like the practical application of the FCA’s ruling is to force advisers to consider exchange traded funds and closed end funds. The FCA has been concerned that advisers haven’t considered low cost options and this is the way that they achieve this objective. It’s probably the reason why UK closed end funds now trade at very narrow discounts.
Regards
Brent
On 11 September 2014 at 2:40 pm Dave Mason said:
Another bank bashing article. Is Goodreturns becoming the NZ Herald of our industry and just citing articles that generate a response? What next..house prices on the rise.
Banks are subject to multiple regulators, including RBNZ, APRA (AU owned banks) and FMA. The levels of obligations that banks have to go through is higher than all of the 'independant' groups that I have seen in my career.
In my team I have 3 CFP, 2 CFP and CLU and and 1 more going through CFP. The team are generally degree qualified with at least 3-4 years experience with customers providing financial advice at one end and at the other end I have advisers with 15-16 years experience who are very professional and competent.
Banks have very good training, good levels of oversight and very strong compliance teams (many of which are ex FMA staff). I think that you will also find that the banks have all been reviewed by FMA now and from my knowledge no issues have been found.
Can we find another subject please.
On 11 September 2014 at 2:42 pm Russell Hutchinson said:
Under the recent retail distribution review a financial adviser in the UK can offer advice on a limited range provided they describe themselves as a 'restricted adviser.'That qualification might be useful.
All bank advisers in a QFE, or AFA, are subject to Code Standard 1, unless the QFE ABS document - removes the requirement to meet Code Standard 1 or modifies it in some way in the "if not why not" statement. That document must be approved by the FMA.
Best wishes,
Russell H
On 12 September 2014 at 10:42 am Murray Weatherston said:
Is the Dave Mason contributor above the David Mason who is a Retail Wealth Manager at the BNZ?
Just asking.
On 12 September 2014 at 10:43 am John Makowem said:
Dave
I do not think that the competence or otherwise of your Bank staff are the issue. As long as the Banks and insurance companies persist with their strategy of vertical integration which push clients towards the funds that they or companies associated with them manufacture there will always be a question mark over whether the solutions are in fact best of breed and putting the client first. Best advice is a lot more than merely satisfying the regulators, particularly where the regulations are so heavily stacked in favour of the QFE type businesses.
On 12 September 2014 at 2:05 pm Brent Sheather said:
John hits the nail on the head here. I should say I don’t advise on KiwiSaver… never have, never will. (Prospective KiwiSavers probably want to meet which is a nuisance!) John’s last sentence is telling…. if its true. What has always concerned me is the fact that so many people at the FMA and government move freely from government to the banks to the FMA back to the banks etc etc. A cynic would say that this wasn’t a good look at all and I think I will leave it at that.
Regards
Brent Sheather
On 12 September 2014 at 2:24 pm Pragmatic said:
Perhaps another perspective could assist with this discussion:
Thinking - 'who will be the major beneficiary from the advice that is to be dispensed?' is often a useful way to figure out whether the dispenser of advice is aligned or not.
In the case of the banks, I suspect that the major beneficiary is the shareholders of the bank... moreso than the customer. Hopefully this isn't the case for non-aligned advisors (although I have to admit, there still exist some who put the product ahead of the client)
Food for thought ahead of a wet weekend...
On 15 September 2014 at 2:28 pm Dr Mike Naylor said:
Like Susan, I have been one of those who have been pushing the FMA to look deeper into the behavior of banks around Kiwisaver, as I get constant feedback from advisers and consumers about poor bank behavior. The FMA has, in general, listened to me, and I gather, will be taking a closer look in the future. The issue has two aspects.
One is the AFA advisers within the banks. As Dave Mason of BNZ points out, Bank AFAs are generally well qualified and can do a good job. Very few of the complaints I have heard relate to them. However the AFAs are in a bind as they can only offer in-house products. The QFA code should be amended to ensure that they have to make it clear to clients that the advice they offer is very restricted. They should ideally be forced to inform consumers that "they may find a better deal elsewhere". That could be applied to all tied advisers (?)
The second issue is the advice offered by counter staff. The issue here is that these staff are being instructed to solicit customers about switching their Kiwisaver etc, with out any RFA backing to do this. As Claire says - you can't expect bank staff to talk about non-house products. However - the code should require that QFA non-AFA staff not talk about kiwisaver/ insurance etc, and should instead direct customers to the bank AFA.
Dave - I think I have talked to you about this - I have found that the in-house training by all the banks in the area of insurance tends to be inadequate. I have talked to most of the bank trainers and a large number of bank trainees and I have some issues with current results. So - no, you do not have "very good training". As an aside - on this site note your affiliation.
Gavin - I like the idea of the title "restricted adviser" - it is one which the FMA could usefully require QFE advisers to use.
Brent - stop being paranoid about FMA staff moving to banks and bank. Its very common with financial regulators world-wide, and is handled by suitable regulation around the issue. After all the alternative would be the FMA only employing inexperienced staff.
As the old saying goes - "Often the poacher makes the best game-warden."
On 16 September 2014 at 2:28 pm R1 said:
The converse unfortunately is also true Mike; "Often the game-warden makes the best poacher". On 17 September 2014 at 4:18 pm Mike Naylor said:
R1 - this is why US regulators impose time restriction on staff leaving & working for firms they have regulated. This could be a good idea for the FMA - e.g; staff who were QFE regulators can't join a QFE for 12 months (?) On 18 September 2014 at 12:25 pm Brent Sheather said:
Hi Mike, I think you are sharply understating the risks here of FMA directors and staff ultimately working for the banks which many seem to do. Sheila Blair, former Head of the FDIC, was quoted in the FT recently as saying that regulators should be banned for life from working for any bank they had overseen, commonsense really. With due respect your twelve month suggestion is ridiculous – one only has to compare the make-up of the SEC with that of the FMA to see the differences. For example there are no practicing fund managers on the Board of the SEC.
Another article says that we are never going to resolve the problems of the finance sector (I think US$200 billion in fines in the last few years) when the sector effectively governs itself. That’s how independent experts see the situation in the UK/US – goodness knows what they would make of the local situation where we have previous ministers responsible for the FMA now working for a bank.
This may not improve my chances of being nominated for the FMA Board but it’s a topic that requires some discussion/action.
Regards
Brent
On 18 September 2014 at 1:21 pm interested observer said:
Just out of interest Mike - where would you suggest they go and work? Presumably just not in QFEs? In any capacity? It's just to make sure they don't go and work in the businesses they've had most exposure to and gained most knowledge of is it?
Does that apply to people who leave FMA to set up their own businesses and then consult for QFEs too?
And what about people at FMA working in other teams - enforcement, or policy for example? Are they OK because they weren't QFE regulators, or is it everyone from the supervisor?
What if there isn't a 'QFE regulator' team? Is it anyone involved in monitoring any form of financial service or regulation?
I just think we have a much smaller market than the US, restricting peoples right to work within that small industry just because they have regulator experience doesn't seem practical?
On 18 September 2014 at 2:28 pm interested observer said:
Just out of interest Mike - where would you suggest they go and work? Presumably just not in QFEs? In any capacity? It's just to make sure they don't go and work in the businesses they've had most exposure to and gained most knowledge of is it?
Does that apply to people who leave FMA to set up their own businesses and then consult for QFEs too?
And what about people at FMA working in other teams - enforcement, or policy for example? Are they OK because they weren't QFE regulators, or is it everyone from the supervisor?
What if there isn't a 'QFE regulator' team? Is it anyone involved in monitoring any form of financial service or regulation?
I just think we have a much smaller market than the US, restricting peoples right to work within that small industry just because they have regulator experience doesn't seem practical?
On 19 September 2014 at 3:01 pm Bankadviser said:
@Dr. Taylor. Dave Mason from BNZ here. BNZ has no restrictions on produce being on house as we do not manufacture. We prefer to use best of breed funds and/or direct.
I would also beg to differ on your view that the training is inadequate on insurance. Banks spend a large amount of time and money ensuring its advisers are trained and developed in all ares of their role. We also align with specialist where our customers require a more specialised service, such as commercial.
I'm always happy to discuss this with you, but please don't place all "banks" in the same bucket. You would get upset if we said all Universities are the same.
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But don’t despair a scandal or two involving mum and dad losing millions and we will arrive at the UK position.