Advisers fear IFA’s help could haunt them
Advisers are concerned voluntary guidelines issued by the IFA could be used against them if they get sued by clients or find themselves in trouble with the FMA.
Thursday, October 13th 2011, 5:00AM 
12 Comments
by Niko Kloeten
The issue was raised yesterday at the institute's professional development day in Auckland, where president Nigel Tate outlined the IFA's latest guidance.
It was prepared in light of recent court judgments that caused uncertainty among advisers, particularly the Armitage v Church case, which the IFA's lawyers reviewed extensively.
Tate joked that the lawyers' response to the judgment had been "thou shalt not give any advice as there is too much risk."
Instead of heeding this advice and packing it in altogether, the IFA put together new recommendations on how to deal with a range of potentially hazardous issues such as risk profiling, scope of advice and diversification.
Tate emphasised that the guidelines are voluntary and advisers aren't bound by them, unlike the code of conduct.
One attendee asked if "members are free to ignore the guidelines if they wish", to which he replied, "absolutely," and later added, "they are guidance not rules."
He said, however, that it could be useful if advisers ended up in court to be able to say they had followed the IFA's practice guidelines.
But advisers are worried the guidelines themselves could put them in the firing line, if they choose not to follow them and later get sued or prosecuted and the court wrongly regards them as rules.
When questioned about the issue yesterday Tate said the institute would be working hard to make sure the FMA understood the voluntary nature of the guidance.
Another concern among advisers at yesterday's conference was how much research they needed to do and how many investment products they needed to look at before making recommendations to clients.
"I don't think there is a requirement for us to assess every single option," Tate said.
"We are not investment analysts, we are financial advisers and it's more about building relationships and filtering out the techno speak and translating it into English or Mandarin or whatever.
"We all have our favourites but it's not because we get 5% rather than 2% but because we have experience with it [the product] and our experience has been positive."
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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Comments from our readers
From the Armitage v Church case the Judge gave a very clear message to advisers (and financial institutions) that they must consider a wide range of products and services in order to meet their requirements under the legislation. In instances where a financial adviser does not research a product or service then they may rely on a third party research provider provided they are satisfied they are competent. If said third party does not research a particular security or product, this would require the adviser to perform their own detailed analysis and provide recommendations to the client.
Advisers cannot ignore or eliminate a product because it does not get coverage by a third party research house. There is a plethora of products not researched by research houses.
For advisers not to perform their duties properly could be construed as negligent.
The Magellan Global Fund is a legend. 10 stocks represent 58% of the fund. Of course it is broadly diversified. Let this be a lesson to you main-street fullas - global share funds should hold less stocks! There might be roughly 10,000 stocks in the global investible universe - but to be sure 9,980 of them will be dogs.
Also look at my mate Kerr. He runs the perfect global share fund. Long, short selling, net, currencies, and all managed from an Australian perspective....... These are the things that main global share managers need to be talking about to their Kiwi clients!
Just a shame Tate opens his mouth before he thinks ...
Also, where does the Goldman come from in the name? I had assumed this was a Goldman Sachs fund (not that this was necessarily a positive!).
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Once again the IFA has presented itself as a voluntary organisation with little/no teeth. I wonder what its ongoing value proposition will be to attract & retain members. Conferences?
I am concerned with the suggestion that advisers “all have their favorites” – and that this approach to portfolio construction is adequate for both clients and the courts. I would have thought that part of the adviser’s value proposition is to continually monitor the most appropriate capabilities for their clients… requiring regular exposure & updates to existing & new solutions. This is a lot of work, and requires a more robust approach to research than simply relying upon “old favorites”