KiwiSaver advice debate not necessarily done and dusted
Although plans to allow non-AFA advisers to offer advice on KiwiSaver were scrapped, there may be new opportunities to explore when the qualification is finalised.
Monday, October 7th 2013, 6:14AM 
8 Comments
by Susan Edmunds
The Code Committee, which administers the Code of Professional Conduct for Financial Advisers, last week released a revised draft of a new version of the code. Several changes had been made to the initial version that was put out for public consultation.
It had been suggested that the committee was paying lip service to the banks with its suggestion that people who were not AFAs could step into the KiwiSaver space.
But committee chairman David Ireland said the committee thought it was a good idea to test the waters on the idea. “We needed to assess something to see what options thee were available to us to try to expand the pool of advisers able to advice in this space. There are limited tools in the regulatory framework, we felt we would have been remiss not to have consulted on that option… the feedback wasn’t 100% opposed to it.”
Some were in favour of the idea and recognised the benefits of it, he said. “In the end, with the arguments raised against it and the possible consequences, it was not something we felt comfortable pursuing at this point.”
The committee had decided instead that AFAs who have not completed the investment strand should be able to offer advice on the first-home withdrawal aspect of KiwiSaver.
He said the committee would look again at the KiwiSaver endorsement once it was formally part of the qualifications framework, and see what it involved. “That might give us enough to legs to push to look at the opportunity for it next year. There’s a bit of chicken and egg about it.”
The KiwiSaver suggestion and changes around CPD were where the committee copped the most heat, Ireland said, and where the most significant surgery was inflicted.
Other changes were made to proposals around code standards seven, eight and nine, which cover clients being given enough information, advice suitability and explanations of advice. “We’ve changed their focus, it’s driven at trying to make it a lot clearer what the expectations are of AFAs are in that particular context. The basic principles are still there but they’ve been repackaged a bit.”
Angus Dale-Jones, a PAA board member, was pleased with the changes to the suitability standard. “The highlight is a rebalancing of the requirement for advisers to ensure that advice is suitable for the client. This is achieved partly by narrowing the obligation itself – in the case of transactional advice – and partly by requiring explanations sufficient for the client to decide whether the advice is suitable. The elegance in the new approach is the acknowledgement that there is a role for both adviser and client in the suitability determination. While some work remains to get the drafting right, it is a pragmatic solution and arguably more workable than approaches overseas, such as Australia’s recently introduced ‘scaled advice’ concept.”
He said the changes to seven and nine reduced ambiguity and paperwork.
Code standard five, relating to conflicts of interest, has also been streamlined and made more principle-focused. Code standard one, the requirement to put clients first, has been amplified. “There can be no doubt.”
Changes were also made to proposals around competency alternatives, to reflect the fact that diploma qualifications were a higher level than Level 5. “It’s not so much a concession as a recognition of the higher level that a diploma brings.”
Dale-Jones said the proposals would benefit clients and advisers. “Advisers stand to benefit from clearer advice procedures and more flexible professional development requirements. The proposals – especially the use of more precise, principles-based drafting – also strengthen their professional protection.”
Fifty-six formal written submissions were made and feedback was received at consultation meetings. Ireland said: “It was far more involved than we initially anticipated.”
The new code is likely to come into effect next year.
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Comments from our readers
Open this up to RFA's or formulate a specialist Kiwisaver pathway for (authorised)Insurance/Mortgage advisers to help these folk make the right choices and more importantly, be better informed about the broader advantages of Kiwisaver. If need be, put a cap on the FUM amount these advisers can advise on.
The current code/policy is not serving the people who need this advice the most.
Do you REALLY believe that an Accountant would be unable to pass the qualification to become an AFA?
David Ross is guilty of many things, being intellectually challenged I suggest is not one of them.
The current regime of study and qualification would never have and never will be able to discover someone who is hell bent on rorting the system. To continually bag the FMA or the Code Committee for David Ross is not really fair. We need a significantly stronger system in place for anyone who can touch a client's funds.
I am quite certain that many CAs would fail skill set C on the basis that they don't have the robust investment processes, resources and expertise (acquired through experience & formal investment qualifications) to provide investment advice - if it were "incidental" to their normal practice activities as it should be. If they do have those things in place, then maybe they should drop the pretence and become a fully fledged AFA (down the non CA path) anyway???
Coach, there is already a pathway for RFA's to advise on KiwiSaver. It's called an AFA. If RFA's are so hell bent on talking to clients about KiwiSaver, with very little effort they can do so.
The whole rationale for the code is to lift the public's views on advisers. I can't see how lowering the standard is going to achieve this.
Are you saying low income clients in South Auckland don't need quality advice? Something is better than nothing?
Perhaps in your scenario the remuneration is the issue for advisers which should be addressed rather than lowering the standard of advice.
What we need is for RFAs to complete a KiwiSaver paper that allows them to give advice to client and help them enroll.
They do not need to complete a 10 credit investment paper and then a portfolio design paper when they will never be putting together a full investment plan for lower income clients.
Giles, becoming an AFA to assist lower income earners enjoy the benefits of Kiwisaver is overkill, expensive and not in the best interests of those who don't get / can't afford advice from an AFA.
Kiwisaver is not the be-all and end-all, but it is the only savings that a large percentage of Kiwi’s will ever commit to. As an industry we owe it to them to at least help them. Especially when it comes to withdrawal of funds for first home deposits.
As we are seeing far too often – the new regulations are not stopping the bad advice – they are only allowing the FMA to prosecute those who get caught. The variance in opinion on what constitutes good advice is evident in the comments above.
The Code Committee needs to start meeting with the lower income families around the “formica table” to establish what real Kiwi’s really want. This includes Kiwisaver advice.
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