Advisers not listening to regulation messages: Frampton

Advisers not listening eh? Looks to me instead like most mortgage brokers have wisely opted to become registered advisers as opposed to becoming authorised. Good decision guys.Why on earth would a mortgage broker want to take time out of his/her business and pay thousands of dollars to ETITO to simply re-learn what we already know? To those brokers still deciding which way to jump on the regulatory fence don’t be a sheep and pay good money out of your business simply to fund another bureaucracy. That’s all you’ll be doing by enrolling for these courses.

This whole sage called regulation was from day one targeted at unethical investment advisers NOT mortgage and insurance advisers. This is why the Government ruled that mortgage and insurance advisers did not have to become authorised. Yes the mortgage broking industry needs to be better policed (and yes the NZMBA and the banks have done a poor job at this to date) but nothing in standard set B & C will change the habits of the bad brokers among us. ETITO have an agenda here and it’s got nothing to do with what is best for our clients or the industry as a whole. Funny, I thought the whole point of regulation was about the client/customer NOT the regulatory bodies themselves?

well said that chap.

Thanks Kev. Something else to point out to mortgage brokers who are "fence sitting" on regulation is that IF they do elect to become authorised then they MUST going forward follow the 6 step advice process for all their mortgage appointments with clients in future. This means a minimum of two trips to see the customer before sending an application to the bank/lender. This process may have its merits when it comes to selling risk insurance but for a mortgage application where we typically work to tight deadlines (thank you land agents) it will be a nightmare for both the broker and client concerned. If I was a client urgently needing finance for a property and I had a broker sit down in front of me and they starting talking about “needs analysis” for my mortgage application I would politely thank him/her for their time and then pick up the phone to talk to the bank!

Based on the chart, after the big budget blowout to get this regulation going, looks like there's a forecast blowout as well?
Some people must have thought they can make big bucks out of this regulation from advisors. Bow it looks like more funding required from government?
Next step - if not enough advisors signing up to be AFAs, then RFAs may be a gone by lunchtime. More fees needed to be collected to keep some people's job. Let's see guys, I really hope I am wrong.

The industry overall is still farcical. Why 'investment advisers' are to be regulated and insurance and mortgage advisers can practice without even having to be members of a professional body, and bound by codes of practice and codes of ethics speaks to me volumes about the industry. Why product providers still allow these individuals to represent them is beyond comprehension.

Hi Observer. Well unlike the “rogue” investment advisers who operate in the industry mortgage brokers and insurance advisers are simply not in a position to destroy people’s “life savings” with the advice they give their clients. I would have thought that was pretty obvious? I agree though that the banks and insurers could do a much better job in choosing who represented them and their products. Compulsory authorisation of mortgage and insurance advisers was not going to change bad habits though. Sadly at least as far as mortgage brokers are concerned the NZMBA has been more focussed in recent years on growing its annual fee income from members than policing the industry of the “bad eggs”. Perhaps with the likes of FSCL on the scene (brokers now having to belong to a disputes resolution service) we will see ethics improve. Of course one could argue then the continued role of the NZMBA going forward which judging from its dwindling membership is already in danger of falling into irrelevance amongst mortgage brokers.

Maybe the ETITO might like to look at their fees and terms and conditions. Take their monopoly test for set B. Over $300 paid in advance by credit card, with no materials supplied, full fees for a resit and a warning that their interpretations of the law can be not be relyed on. They seem happy that the interpretations are good enough to destroy a business but they are not good enough for the courts. They can cancel at a whim, but charge $50 if you have to change the date. In addition the they need months of notice to be sure that they will provide the test. Just as well they are "our" ITO. Imagine what a less friendly organisation would be like.

1) If one were to observe carefully, advisors in generally are not against regulation but, it's a) the way the new regulation was being handled, and b) the kind of fees that is to be extracted from advisors.
2) Being part of a professional body does not guarantee professionalism, otherwise there will be no such thing as an unscrupulous lawyer, accountant or real estate agent.
3) Money/fees will not solve the problem, otherwise, decile 1 schools would be have overtaken decile 10 schools, and vice versa. It needs a meaningful/practical regulation.
4) What happens after an AFA has been assessed qualified by ETITO? From my understanding, nothing. It's just like a car that's complied when imported, and that's it. I have suggested to the Minister a better, more efficient way, and less costly way to regulate advisors - yearly licencing which must be endorsed by respective BDMs. So, if an advisor who represents 5 principals, 3 endorsed and 2 don't, isn't there something to investigate? But that was thrown out of the window.
5) Professional bodies need funding from fees to survive, so tell me, which professional body out there is actively looking for rogue members?
John, pointed out correctly, these regulations will not change bad advisors' practice - a leopard doesn't change its spots.

Observer makes a good point to a degree - why should advice form a mortgage broker or an insurance adviser be less important, or less professional, or less regulated than advice from an investment adviser?

It sends a message to the public that mortgage and insurance advisers are less qualified, less professional and less trustworthy than investment advisers who are AFA's.

Everything I am hearing is that those who choose to remain RFA's at this stage are simply delaying the inevitable move to AFA status for ALL financial advisers. Of course this move may be 10 years away, but then again it might be 2 years away??

An insurance adviser who recommends life insurance but not income protection or TPD insurance to a client who subsequently becomes permanently disabled and unable to earn an income, and then can't afford to pay their life insurance premiums, creates a far greater loss to the client than an investment adviser who told you to invest your $10,000 savings in a Finance Company that subsequently failed.

Both are potentially examples of poor advice, yet from 1 July 2011, the investment adviser faces greater penalties under AFA legislation.

I'm sure a poorly structured mortgage could cost a home owner thousands of dollars in extra interest payments due to poor advice. Or gettign someone into home ownership and debt they cannot maintain could lead to the loss of their largest physical asset they will own during their lives - their home! Just as devastating as losing your life savings (a term thrown around too casually and often means only a few thousand dollars but implies a loss of hundreds of thousands of dollars).

My point is that financial losses by clients through poor advice from insurance or mortgage brokers could be just as devastating as any poor advice given by an investment adviser and at some stage ALL financial Advisers will need to meet the AFA standards.

Even from 1 December, ALL Financial Advisers MUST act with due diligence, care and skill!

Essentially this means we MUST ALL work to the standards of an AFA, even if we do not deal in category 1 products.

Hi Mark. I agree with Observer and yourself on the issue of "fairness" with respect to investment advisers being forced now to be authorised but mortgage and insurance advisers not having to. I think the real issue is the small minority in the financial services industry who ruin client’s lives with their bad advice on insurance, mortgages or investments products. These “bad eggs” are the thorn in the industry’s side and spoil it for good operators such as ourselves who would never do wrong by our clients. I don’t think it matters what industry you work in there will always be people prepared to screw clients over for their own personal gain.

Mark Jory - you are totally correct. So too are many of the previous comments made by other intelligent posters. I have two major questions: Why has the ridiculous legislation come so far despite being totally inadequate in its attempts to protect the consumer, and against so many educated and qualified objections from advisers? Secondly, why should many of us now have to complete a blanket qualification to do something that we have been doing in a lot more detail for many years? To liken it to the building industry, it is like everyone involved - builder, electrician, painter, drainlayer etc, doing a crash course in constructing a house. Clearly the painter does not need to know the drainlaying regulation (re-iterating John's comments). I have far more relevant and qualified education (a degree) specific to my job, yet it counts for absolutely NOTHING, yet some stupid ill-conceived ETITO course is supposed to cure all ills. How do we sort out this stupidity and senseless waste of time and our money? Yes – there are going to be some BIG budget blow-outs and job losses. And the ironic thing is: the new regime will not stop fiascos like the Hubbards and Dominion Finance instances!
And to throw a spanner in the works – a young lad drove his car badly and killed a kid. He got community service. If I practice without being registered or authorised, I face an automatic fine of $100000!
Tell me, what happened to common sense?

Well said Andy. To answer your question about what happened to common sense? There is a whole industry in this country built out of red tape and bureaucracy to create jobs with no added value to society. The likes of ETITO are no different and unfortunately honest ethical advisers now have to pay good money out of their businesses and sit exams for no real purpose. You can thank the previous Labour Government for this culture. Welcome to New Zealand!

Who says National is any better than Labour when it comes to wimping out / toadying up to bureaucarats / spending more 'but only half as much more'.
The aim of the legislation is to whitewash the industry in the eyes of the public. That is what the fund management industry wants. It is not about protecting the public from rogue advisers. That is just a pretense. Just cough up for the fund managers. They want independent advisers out of the way anyway. Far preferable to compete only against QFE advisers.

Looking at the headline again, assumption had been made that majority of the advisors are going to take the AFA route, that's where the projection (if any) went wrong. Perhaps, only 10-20% are really interested? And if it had been this had been known from the start, maybe education providers will not have so much business, right? wrong?

I can't resist responding to some of the outlandish comments made here.

Before doing so, I would put some context around my comemnts.n Firstly, mark Jory is absolutely correct. Negligence or incompetence in providing advice from a mortgage broker or commercial lending broker,or a life insurance adviser, or an estate planning specialist can have intergenerational consequences. The scope of potential impact can be far more sever than the loss of ones investment protfolio - regardless of size.

Further, there is little doubt that the creation of this regulated environment has been tortuous, at times ill-conceived, poorly drafted on too many occasions and shwoing little real understanding of either how the industry works or what consumers actually want. There has certainly been a big brotherish "we know what is best for you all" element to it all, which can be firmly placed back to Leanne Dalziell's day. I know this as I have been heavily involved in the discussions and submissions and negotiations for about 5 years.

My final contextual observation is that it is pointless bitching about regulation. it is done and dusted largely. It is here. Suck it up people. The time for fighting, lamenting the unfairness of it, or merely denying its existence and hoping it will just somehow go away is gone. The law of the land has been set, for better or for worse, and if we wish to stay in the industry we just have to try and work with it and make the best of it. If that is impossible for an adviser to do, then this isn't the right industry for them anymore.

That may sound harsh, but it is plain reality.

So to dispel some of the schools of thought that appear to have taken hold - the fund managers did not want this outcome. As far as I can tell most mainstream insurers did not want this outcome. Nor the general insurers.

The banks appear pretty happy with it. So perhaps that reflects the weight of political influence in the submissions game. Who knows?

A truly cynical and jaundiced person might even conclude that this whole financial services reform agenda - which extends far far beyond merely changing hwo advisers work - is somehow inextricably linked to the prospect of free trade agreements. The cynic might infer from the lack of political contest over this reform (or dare I say it, the unity across the NZ political spectrum over it), together with the announcement and implementation of the reform after the IMF had wandered over here and told us we really needed to pull our socks up and get the same legislative regime as major trading partners if we wished to play in the big leagues, all coupled with the enthusiasm with which would be regulators and bureacrats of modest means saw empire-building opportunites....and the cynic begins to conclude that perhaps no-one actually cared all that much about what happend to consumers or adviser or suppliers. This is for the greater economic prosperity of the nation. Get this right and we can sell more lamb and milk fat to Americans perhaps.

They finance company sector melt-down, and trouble with various other investment sectors was convenient for some sectors. It was a time of massive destruction of personal wealth that most consumers and most advisers had no chance of seeing unfolding as it did, or stopping when they did see it happening.

Nevertheless, it perhaps became the catalyst for change that the policy makers really needed.

Regardless of whether a cynical view is correct, or whether it is merely paranoid fantasy, the fact remains that the law is done. it is here. It wasn't sought by the majority of the industry, nor is it popular with the majority of the industry.

For all that, the majority of the industry can see some benefits that will come out of it. For some it is the benefit of controling distribution. For others it is the benefit of removing rogue advisers that hurt everyone's reputation. For some it will be the benefit of consumers HAVING to accept objective advice rather than the old days of them effectively telling an adviser to compromise the advice in order to save $1 per month in premiums or some rubbish.

I often look at the implication of draconian regulation in Australia to give a indication of what the consequences might be for NZ. And frankly, there is a period of pain and loss. Pain for those who try to do the right thing and wish to stay in the industry. Loss of those who don't wish to do either of those.

The outcome for survivors is actually pretty good as far as I can tell from the Australian experience. there is a cost without doubt, and there is pain. But there are significant commercial benefits and legitimate professional standing for the survivors who prosper in the new world order.

If you happen to be an evolutionist, you would conclude "that is as it has always been, and as it should be".