Advice industry split on KiwiSaver rules
The Financial Markets Authority’s stance on KiwiSaver advice is either common sense or the FMA overstepping its power, depending on which part of the advice industry you talk to.
Wednesday, October 17th 2012, 7:10AM 
11 Comments
by Niko Kloeten
The FMA’s final guidance on KiwiSaver sales and distribution confirms Registered Financial Advisers (RFAs) can sell KiwiSaver in limited circumstances.
However, the FMA has stuck to its controversial view that advice can be implied, despite a number of submitters questioning whether this view was supported by the Financial Advisers Act or by Parliament.
The Bankers’ Association has slammed the guidance, which chief executive Kirk Hope said was bad for consumers because it would limit access to information about KiwiSaver products.
“By limiting who can provide information about KiwiSaver, they make it harder for consumers to make informed decisions. It could also force people to bear the cost of using specialist advisers,” he said.
“They’ve made incorrect assumptions about the law, and Parliament’s intentions, and have ignored all submissions on this point. Their insistence that the Act includes a concept of implied advice is not correct. And they haven’t explained how they came to this view.
“We object because we believe they’ve gone beyond their powers. Not because it doesn’t suit us.”
However, IFA chairman Tony Vidler said the guidance would benefit consumers by reducing confusion, notingthat many consumers are still struggling to understand the different adviser designations.
“I would imagine those who are already or are close to becoming AFAs will probably be very happy with the guidance,” he said.
“Those not very happy will include the RFAs who were trying to sell investment products without being authorised to do so.”
He said there was an element of “resentment” among AFAs towards RFAs trying to operate in the KiwiSaver space, particularly due to the greater liability that comes with being an AFA.
“Generally speaking it would be fair to say there are a majority of the professional advisers who are not happy with the idea less professional people with lesser licensing requirements are allowed to do their job.”
But Murray Weatherston said RFAs do have a considerable liability when advising on KiwiSaver: that they will step over the line and fall foul of the FMA.
“I’m pleased I’m not an RFA figuring out what I can or can’t do and then whether I want to do it or should do it,” he said.
“One way to solve the problem would be to say those people who are registered but not authorised can sell KiwiSaver, but that would make a mockery of the whole system.”
Weatherston also questioned how claims of RFAs stepping over the line into personalised advice would be investigated.
“With a one-on-one conversation unless it’s completely taped the only way the FMA could ever have a clue on it would be to mystery shop it.”
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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Comments from our readers
On 17 October 2012 at 10:35 am w k said:
@amuse. 100% correct. furthermore, many RFAs are more than qualified and ethical than some AFAs.
Wondered who monitors or is responsible for all the millions of dollars wasted on mucking around with the regulations? Is there a body we can lodge a complaint to and take these people who to court for wasting our time, money, their inefficiencies, and causing distress?
On 17 October 2012 at 12:25 pm Dirty Harry said:
Careful Amused. I'm an RFA and in IFA. I don't think I have rocks in my head, yet I am working towards AFA simply because I want to have the credibility it brings, the options to work with whatever the clients wants to discuss without fear of crossing the ever-moving lines, and because I think the AFA standards will be the measuring stick used in future trials/complaints.
Remember, RFAs and QFE workers don't have to tell customers how they are paid and how much, whether they are/have been bankrupt, whether they have convictions etc. They don't have to know the code, and many don't think they have to follow it. So, in fact, by definition many RFAs cant be, wont be "professional". There will be those who see this FMA "guidance" (smells like a rat trap to me) as a green light back to the practices of old.
On 17 October 2012 at 4:41 pm Amused said:
Thanks w k.
Point taken Dirty Harry. I agree often with your comments on this site and I commend you for wanting to be personally measured against a higher standard than which RFA’s have to be. I however won’t be going down the path you have started on and here’s why. There is lot of scaremongering going on by the regulators, professional associations (yes I still remember the NZMBA pushing for all mortgage brokers to become authorised) and compliance and training firms to see as many advisers become AFA as possible. These organisations obviously have a self-serving agenda to promote this stance. They would happily tell any adviser that listened that unless you are AFA then one day the sky will fall on your head. Rubbish! If an adviser is ever stupid enough to do something unethical by their client then he/she should and can expect now to have the book thrown at them no matter what designation they operate under. There is no place for such people in our industry going forward although unfortunately there will always be advisers who are only focussed on what’s best for themselves and not their clients. Just because an adviser may be an AFA, RFA or QFE makes not one iota of difference if he/she is going to act professionally.
I have personally witnessed an instance this year in which an AFA sold an existing mortgage client of mine a life, IP, TPD & Trauma insurance policy with premiums of $1,100+ per month. Never mind the fact that the clients had previously repaid their mortgage in full at their bank and had good existing life and income cover (albeit with AMP) costing them $300 per month. Once these clients realised they had no way of affording these additional premiums they went back to the AFA (whom they had approached initially for property investment advice) and cancelled the policy. Result – the AFA basically called them idiots, refused to help them with their investment portfolio anymore and told them in not so many words to get lost! Great. And this guy is supposed to be one of the really good investment “gurus” in Wellington. Very professional indeed.
As an RFA I’d have no problem voluntarily telling my clients what I receive for payment on a mortgage or when I write an insurance policy. The thing is though (hand on heart) I have never been asked by a client of mine in 10 years what I get by way of a commission from the banks or insurers. Clients simply don’t care if your service to them is free and they trust what you are telling them is accurate. As for me disclosing whether I had been made bankrupt or had any past convictions I was under the impression now that the annual re-registration process that all advisers must go through would “red flag” such individuals and stop them from been able to be listed on the FSPR in the first place? Why else are we paying each year for a police check to be done?
To get back to the topic at hand the FMA is torn between the wording of the Financial Advisers Act regarding the definition of implied advice vs. the ultimate reality that there simply aren’t enough advisers able to “legally” discuss KiwiSaver with clients. What a snafu!
On 18 October 2012 at 10:27 am Dirty Harry said:
@amused
At our firm we have always had full disclosure of fees, commissions, trails, incentives - the lot. I walk clients through the disclosure(s), explaining each page.
Thing is clients don't know what they don't know. They don't know that they should want to know about convictions, bankruptcy and other things that would change their mind whether to work with someone - 'material facts' per se.
Under the disclosure rules the RFA document is prescribed. There is very little in the first half, IE name address, FSPR number and a product list etc, and then half a page on how to complain.
So I have a 'supplementary' second disclosure which covers all the things an AFA would have to include.
Clients are interested in how much we are paid, and some do ask. Funny that those who have asked wanted to make sure I got something because they were really pleased with the work/advice/result.
On the subject of the undesirables:
I know of an adviser practising in my patch, who is registered, and attached to a local law firm, and is a bankrupt.
and lets not forget the Munros.
http://www.goodreturns.co.nz/article/976499471/govt-slow-to-close-adviser-loophole.html
The disclosure requirements on QFE advisers are even worse. And that's why so many "characters" of the dark days have found a home within the many QFE structures that popped up.
Check the details here for a comparison of whats required to be AFA vs RFA vs QFE - a good refresher for many I'm sure. In particular look at the details for Authorisation, Competency, Conduct, and disclosure.
http://www.sovereigninsider.co.nz/Regulation/AFA,-RFA-and-QFE-requirements.aspx
Startling.
RFA is not the gatekeeping process many would have expected it to be. Bankrupts can be RFA or even AFA (just bury it on your disclosure). Criminals can be RFA, unless they are not deemed to be of "good character" - a process that is failing - refer Munro.
On 18 October 2012 at 3:42 pm Amused said:
@ Dirty Harry
Agreed. Regulation (RFA, QFE or even AFA) has not stopped the unscrupulous from been able to operate and to be frank to date it seems more about revenue gathering from advisers than actually protecting the consumer. I think most advisers would agree on this if they are being objective. Has the FMA got around yet to cracking down on the bottom feeding loan sharks that aren't even on the FSPR as they are required to be by law? No? Where are the FMA's priorities at then? Seems to be just a whole lot of paper shuffling with AFA adviser business statements been picked apart ad nauseam. Easy to show the politicians that the regulators are busy whilst actually accomplishing very little of worth!
Again I will not submit my own business to such madness (by becoming a voluntary AFA) just to keep some bureaucrat or compliance trainer employed in their job all day. If I thought for a second that AFA status would give me an advantage over other advisers or benefit my clients in some way I would jump at the opportunity naturally. It simply won’t though without sounding arrogant. It will actually be a severe disadvantage! I have no desire to discuss investment products with any of my clients and always refer them on to dedicated wealth specialists at the banks who are best qualified to give them the most appropriate advice and guidance. I’m primarily a mortgage adviser so as I say to clients I am naturally biased towards recommending property hence they need to speak to someone independent who can ascertain the “best” investment option for their particular circumstances.
We have seen many comments on here from advisers who in hindsight now regret their decision to be an AFA. Again I respect any adviser who thinks been an AFA is where they want to be going forward. I just think though (as far as mortgage and insurance advisers are concerned) many are unnecessarily jumping through hoops that don’t need to be jumped through plus creating a whole lot more work for themselves and their businesses whilst feeding another paper bureaucracy.
Sorry, no sale….
On 18 October 2012 at 5:22 pm Andrew said:
What I find classic is RFAs can give class advice but if they do a proper job and give tailored advice they fall foul of the law.
Weatherston also questioned how claims of RFAs stepping over the line into personalised advice would be investigated. Exactly any law that is unenforceable is bad law.
On 18 October 2012 at 7:07 pm Tony Vidler said:
Once again, for the record, as has been done many times before, neither the IFA nor myself personally hold the view that an RFA is necessarily any less professional than an AFA.
Professionalism is demonstrated by behaviour & ethics & attitude. A bank teller can be professional in their behaviour. Anyone can. Certainly an RFA can be. Many are - but certainly not all are.
Professional competency is a different, though associated, issue. This issue is driven largely by an advisers demonstrated learning & licencing provisions, as those two factors determine what the market regulator deems to be professional competency. It isn't the IFA that makes that assessment. It is the regulator through the process of authorisation.
Those who choose not to be authorised are effectively voluntarily restricting their own demonstrated "professional competency".
Which part of this is confusing two years down the track?
It is tiresome to continually have to belabor this point to anonymous agitators who seem to have an axe to grind, and contribute little to the image or development of a profession with thoughtless and ill directed comments.
Tony Vidler
On 19 October 2012 at 5:05 pm Mortgage Broker since 1999 said:
What gets me is how can an AFA that sells only one brand of product because they work for that branded company, be better than an RFA that has no ties with any particular provider .... It is impossible for any one provider to be the best one 100% of the time.
I class these type of AFAs and all QFEs sales people and not true advisers to the client.
On 25 October 2012 at 4:03 pm shane said:
forget all the above,Kiwi saver should not be a cat 1 product! end of story! On 25 October 2012 at 9:19 pm Dirty Harry said:
Well said Mortgage Broker Since 1999.
And by agreeing with you I must allow some room to agree in a roundabout way with Amused.
These QFEs are giving some of THE WORST advice I have ever seen. Whether its switching KS for crap reasons like theirs has a 24/7 internet portal (and higher fees, worse performance and invisible "benchmarks") or selling insurance that wont work because it's "cheaper".
There are too many AFAs who are much less "professional" than many RFAs.
The FMA is doing the right thing to take aim at the QFEs.
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Mr Vidler seems to be insinuating (again) that RFAs can't be professional in what they do with their clients because they have chosen not to become an AFA.
For your information Tony the bulk of RFAs have no desire to give advice to clients on investment products (let alone KiwiSaver) There is absolutely no advantage to an RFA becoming authorised if they are solely focused on mortgages and insurance only. In fact looking at the amount of compliance requirements that AFAs must adhere to many would argue that an RFA would have to have rocks in his/her head to even contemplate becoming authorised!