Act not serving consumers
Consumers are “hopelessly confused” by aspects of the Financial Advisers Act as it stands, commentators say.
Tuesday, June 23rd 2015, 6:00AM 
4 Comments
by Susan Edmunds
John Hawkins, chairman of the New Zealand Shareholders Association, said one of the biggest problems was the system of RFAs, AFAs and QFE advisers.
He said the vast majority of consumers would not know that the different adviser designations meant, nor what they could advise on, or the limitations of their advice. “Some are no more than glorified sales and that is an area that needs to be cleared up,” he said.
Another problem was that it was very time consuming to sign up for advice. “People with modest amounts of money find it hard to get an adviser to give them specific advice catering to their situation because they do not have enough money to make it worthwhile for the adviser to spend the time. We have a situation where the administrative complexities of the regime are reducing choice.”
Many advisers had responded to the regulation by shutting up shop, or choosing to amalgamate with a larger group.
That had meant smaller centres, which could not sustain big advice operations, had become more poorly served for advice. “The larger centres are better catered for and the smaller centres are missing out," Hawkins said.
Massey University senior lecturer in economics and finance Jeff Stangl agreed changes should be made. He said more education was needed – for consumers so they could understand why they should seek advice and understand the advice they were given – and for advisers.
He called for a higher entry standard for AFAs and an increase in ongoing CPD requirements.
“The intention of having the bar set really low was to bring in more people into the fold as AFAs and gradually and progressively raise the bar. Education is critical.”
Both said more clarity was needed on commissions and conflicts of interest.
Hawkins said it would take a while for the advice industry to develop so that consumers would have confidence. “People had a pretty bad experience, that’s not going to disappear in one, two or five years. It’s almost a generational thing.”
Massey University is this evening hosting a discussion about the potential changes to the Financial Advisers Act. Speakers will include retirement commissioner Diane Maxwell and Hawkins, as well as financial sector representatives, including key professional bodies. Commerce and Consumer Affairs Minister Paul Goldsmith will also attend. It starts at 5.30pm.
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The other observation I have made is the self interest of Massey spokespeople consistently demanding higher levels of adviser education (primarily degree level. It would be great to know if any Massey spokesperson or commentator has KPI's or remuneration linked somehow to increased numbers of students. Goodness knows us AFA's have to fully disclose everything - perhaps personal disclosure should extend into different spheres.
Just as with changes in regulation--there will be no 'sudden' effect on consumers as a result of regulatory and other efforts. Most consumers won't rush to access adviser services as a result of an overnight financial literacy switch being turned on.
Last time I checked credible professions have high education standards. Focusing on trees and neglecting the forest at large is not beneficial in the long-run. Time usually cements this fact.
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Hawkins has highlighted two well-known issues here, without being quoted mentioning any solutions:
1 - Confusion about designations and functions etc.
2 - Access to low-cost advice, particularly for investors with lower amounts.
We know the problems, and all know the questions. It would be refreshing to see what answers Hawkins might suggest. Simply re-stating the issues is not helpful. The FAA review is the ideal time to start talking solutions, ideas and suggestions.
Stangl thinks we need to increase the requirements for qualification (he would say that) and CPD (that too). But if we do that, the two problems may actually get worse. Whether or not you agree with raising the bar, we must acknowledge that timing is important – how about announcing the requirements but implementing over time? Making it harder to become and stay an AFA, without mitigating other issues, will only make the two problems above worse.
Yes, the bar was set lower to get more “in the game”. Did that work? The game started with far less players than first envisaged, and the number has been in decline ever since. Now may not be the time to impose tougher entry criteria.
For number 1 above, it is unclear what Stangl thinks should become of RFA and QFE advisers. If AFA requirements are lifted (too quickly), there will be even less AFAs. Does that mean RFAs will still exist, with a higher step between? Or no RFAs and everyone has to jump? Many would jump off.
One direct consequence of the regulations was thousands of advisers who helped punters with KiwiSaver stopped doing it.
The problem is a push/pull. On the one hand some think we need to lift standards, but on the other hand more people need to be able to access lower cost advice. Not enough commenters are giving weight to both perspectives.