IFA boss says get rid of RFAs
The two-tier system of registered and authorised advisers is confusing to consumers and should be replaced, according to Institute of Financial Advisers president Nigel Tate.
Tuesday, December 6th 2011, 6:54AM 36 Comments
by Niko Kloeten
He expressed the view during an interview for the next edition of ASSET magazine, which looks back at the major regulatory changes the financial services industry has been through this year.
Asked what he would have changed if he had been in charge of the regulatory process, Tate said he would have taken a different approach to adviser accreditation.
"My pet desire is to get rid of the two-tier accreditation process - I wouldn't have Registered Financial Advisers and Authorised Financial Advisers, just AFAs.
"At the moment it is confusing to consumers, who don't understand the difference between a Registered Financial Adviser and an Authorised Financial Adviser.
"I wouldn't have given lawyers and accountants a free ticket to the game."
Tate said there's technically no such thing as an RFA: "they're really just non-AFAs."
He said it was "way too easy" to become registered, and disagreed the way certain financial products had been categorised under the regulations.
"According to the FMA risk insurance is a simple product much like a term deposit. Well I would dispute that.
"Show me a simple income continuance policy... the implications of getting it wrong are massive, the cost of getting it wrong is bigger than the policy itself."
Another criticism he had of the regulatory system was that if he and an RFA down the road both gave the same advice on the same category two risk product they would be treated in different ways if things went wrong.
"I'm held to a different standard than they are and that's wrong in my view."
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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Find me ten people off the street who have heard of the Institute of Financial Advisers.....
Where in any of the legislation is the term "registered financial adviser used"
My feeling is that it is not defined anywhere.
We all have to be registered as a Financial Service Provider under the FSPAct.
As Nigel himself points out, some of us doing certain things have to be authorised as AFA. But if you don't do the things that require authorisation, you don't need to do anything except register as a FSP.
I was interested to read that Nigel believed an AFA advising Cat 2 would be treated differently from say a pure Insurance agent (not required to be authorised).. Surely both are subject to the same EDRS complaints processes.
I refer Nigel to Section 16 of the Financial Advisers Amendment Act 2010 which replaced S16 of the FAA 2008 which states;
16 Types of financial adviser
Under this Act, there are the following types of financial adviser:
“(a) an authorised financial adviser:
“(b) an individual who is registered but not authorised:
“(c) a QFE adviser:
“(d) a QFE or any other entity that is registered but does not have QFE status:
“(e) any other person (whether an individual or an entity) who is an exempt provider.
A registered financial adviser is in the legislation and is simply "an individual who is registered but not authorised". This is more than just "technically", it is a fact in law.
I would also suggest that any confusion the public may have is perception rather than fact. Clients I have seen over the past year were not even aware there was legislation now in place let alone who has to be Authorised and who needs to be Registered.
It was only after they were presented with my Disclosure Statement they became aware of the situation.
I would suggest that at some time in the future (5 yrs?)all advisers will need to be authorised. Until then we should get on with it and just make sure that the product our client's get is "fit for purpose" and that their interest, and not our's, are put first.
If you really want to protect the consumer, then they should seriously look at getting rid of QFE's,
As QFE's can only sell to the consumer what products they have and not always the best product on the market for the client.
And never accept anyone's assertion or inference that Authorised Financial Advisers are somehow 'loftier' or 'better' than RFAs. They are emphatically not. The AFA distinction is a purely legislative one, prescribed to reign in the excesses of financial planners who were responsible for destroying the wealth of fellow New Zealanders to the extent of billions of dollars. AFAs don’t belong on a high horse, they belong behind one.
Everyone needs to remember that from a clients perspective ultimately it comes down to how we all act and professionally deliver product/service/advice - not how many qualifications or level of title one has! Quoted from happy clients ...I have financially guided them significantly better than people that are now AFA level advisers. Reason - here to help clients and NOT get lost in the world of political status!
If you define financial products and services widely, you then have to start looking at possible exceptions - jornalists, budget advisors, employers on Kiwisaver, wealthy investors.
You have to deal with issues like can an AFA talk to Strategists, Fund Managers, and Research Houses - or will they all have to be AFAs as well? What about an offshore fund managers presenting to an AFA here - will they have to be AFAs or not come?
How far do we go into the back office. Can an admin person who never deals with clients query an AFA on something they have asked to do or do they need to be AFA to give advice to an AFA?
I suspect you would ultimately get to the same place as now - with a grey area where some people can in some situations give some types of financial advice to some people without being an AFA. That is how life works.
I suspect fixing any oddities in the current regime would be more productive than redoing the whole thing.
"the excesses of financial planners who were responsible for destroying the wealth ..."
"high compliance costs due to legacy of poor investment advisers..."
Ahem. When exactly did you guys forget who really caused the majority of the damage? Here I was thinking we all were paying for the incompetence of regulators, the poor management by directors and the sloppy auditing...
Jeff, we have our broker group survey in Mortgage Mag. I think if you read what Mike Pero is doing with its broker/advisers you might take a different view.
I am a 38 year fire & general specialist (not someone who has chosen to be a financial adviser as an alternative career - note how few if any in the life and investment area are career advisers) and have spent weeks organising PI cover for web designers operating in the USA.
The problem is that the rules were written around investment advice. That the two biggest professional associations for insurance professionals and the largest providers of education for insurance professionals, and the qualifications provided by them, are not recognised is a crime.
What we really need is people competent in the field that they give advice in not a bunch of acronyms.
Did he at the very least sanction the interview with the IFA Board?
I suspect it is a personal opinion and is typical of so many who have served the IFA and its predecessors; their personal opinions are reported as being those held by the whole group.
We have had two years of upheaval and all the President of the IFA can come up with is that it is all wrong and let's start again.
I do not agree with everything that has occured in the last two years, but I think slowly we are heading in the right direction.
If as an RFA I give bad advice on an Income Protection plan I am liable to the full force of the law the same as an AFA.
Stop grandstanding.
It is unfortunate that Nigel has ventured a persoanl opinion in his capacity as President of the IFA. If his intention was to alienate a couple of hundred IFA members who are RFAs; he has probably succeeded beyond his wildest expectations. I don't believe it was his intention though.
One of the things it takes some time to learn when you are the leader of an organisation is when to venture an opinion and when not to. We have all been guilty of opening our mouths and inserting our feet in the past, so let's give him the benefit of the doubt.
For me AFA, RFA, QFE - it really doesn't matter a hell of a lot when you're out there doing the best you can for your client. And as for any others - let's face it - no matter what the legislaton, regulation or education; none of this stuff is ever gonna get the sharks out of the water. It's just gonna make the shark smarter.
If FMA believes consumers are confused by the use of so many acronyms and are potentially being misled we have to prepare for yet more change.
Remember folks - this is CONSUMER FOCUSED regulation.
I suspect that Mr Tate's comments contain a kernel of truth and perhaps a warning that we would be ill advised to ignore.
An AFA assumes personal liability through statutory obligation that they cannot contract out of under the FAA. Others do not. Both are however subject to the ordinary torts of common law responsibilities though.
There is an accountability difference, amongst other differences.
Please note I am not claiming particular superiority of one over the other, merely identifying what appears to be a lost fact.
We have ALWAYS all been liable under common law; where however apart from via the FAA (and other legislation) am I as a RFA liable to consider the interests of my clients first and foremost?
How can I be liable for or subject to a visit from the FMA to check my files and my conduct unless I am also subject to the law laid down in the FAA and other legislation?
I do not think there is one bit of difference in accountability.
A fact is a fact, and the only opinions that will actually carry any weight on this type of issue are those of the regulators, disputes schemes, judges & possibly PI insurers at the end of the day.
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Simple - and lay-off a caste of thousands.