Scrap designations and replace with advisers and sales people
The current designations for financial advisers should be scrapped and replaced with two new groups, advisers and distributors, Barry Read says.
Wednesday, July 8th 2015, 6:00AM 
19 Comments
by Susan Edmunds
Read, who runs consultancy firm IDS, says advisers would give advice and have a fiduciary responsibility to clients, while the distributors would be product sellers.
There would be an element of buyer-beware with the distributors, he says.
“Some people are happy to be sold a product,” he says.
The advisers could be licenced in any category, such as wealth management, investment, life insurance and mortgages, and they would be monitored.
He said establishing a group of advisers is similar to the way the Financial Markets Conduct Act requires licensing of class DIMS providers and managed investment schemes.
“You could divide it so there are those that want to do advice and planning and they could be licence-holders. Others would represent a product provider, whether that is one or multiple.”
That would mean consumers going to a product provider representative would know that they could get help but the advice they would get would not be as full or non-conflicted as that of a licensed adviser.
Read said that was sensible because many QFE advisers, such as bank staff, were already in a situation where they were unlikely to recommend that a customer did not move to their own products.
“They should be able to have an adviser in there giving good advice but consumers should know that it is conflicted in some way and take it with a grain of salt. The licensed ones would be ones who aren’t with a product provider.”
He said once that split was tidied up it would be easier to make decisions around standards and regulations.
“If consumer confidence is the most important thing you want to easily state to them ‘if you’re making the decision yourself and you just want help, go to a product provider’. If they want advice, and recommendations that are in your best interests, you need to know who [the licensed advisers are] quite clearly from the others.”
It would be a benefit to the entire industry when they could just “get on with it” and focus on their businesses, not regulation, he said.
He said many of the problems identified, such as churning of insurance products and conflicts of interest, would disappear with such a structure.
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Comments from our readers
On 8 July 2015 at 9:52 am Brent Sheather said:
Barry, how exactly would conflicts of interest disappear with such a structure?? Regards Brent On 8 July 2015 at 9:58 am impartial_observer said:
This would only work if the distributor was clearly identified as an employee or direct agent of the Product Manufacturer, not a 3rd party with distribution rights.
Especially if that 3rd party has distribution rights with multiple manufacturers. If I am being sold a product provided by Insurer A, by a person who works for Insurer A then fine, I understand I am being sold a product, but as soon as I walk into Bank B and am discussing my financial affairs with a Bank B employee who recommends I take a policy with Insurer A, I could rightly assume that I was receiving advice.
The same goes for "independent" distributors. I could pull out a business card with 6 Insurer logos on it and "sell" a policy as a distributor without having to adhere to the same standards as "Advisers".
On 8 July 2015 at 10:36 am b p said:
That argument is a bit shallow Pragmatic. Do you really believe that an advisor (however legally described) that can only recommend products manufactured by his employer is exercising the same fiduciary responsibility and judgement as an advisor who chooses products that he/she believes are best of breed from a wide range of product manufacturers?
Your argument is naive - no rational person, inside or outside the advice industry, believes that the two approaches are equivalent. It's logically impossible for every product supplier who only suppliers their own products to advisors to claim it is "best of class". Therefor their advisors cannot be fulfilling their fiduciary duty, unless they clearly disclaim that away by clearly stating that they are tied to one supplier. And I haven't even opened the commission/salary/bonuses can of worms.
On 8 July 2015 at 12:16 pm tonyc said:
Interesting that everyone thinks giving advice is about what company you use rather than what protection or action you recommend. On 8 July 2015 at 12:51 pm Ron Flood said:
Barry. I thought the days of 'flogging' insurance polices was over but low and behold we now have you giving your blessing to such a practice. I hope MBIE are not following this thread. On 8 July 2015 at 1:07 pm AdviserMan said:
As a starting point I like the concept Barry, it should be kept simple for the consumer to understand, and the adviser/distributor to operate, with appropriate legislation to cover both, so Regulators can have clear boundaries to maintain around behavior and practice.
Will wait to see some details, but certainly the more positive option raised yet.
On 8 July 2015 at 2:51 pm Pragmatic said:
@bp: perhaps looking at the industry through the lens of the consumer would help to change your perspective
Let me assist: when I go to my doctor, should I receive the most appropriate solution for me or for the doctor?
On 8 July 2015 at 3:15 pm Malcolm.Dixon said:
As I recall the act states there are only two types of adviser a) those who are authorised and b) those who are are not - all of which need to be registered....I find it interesting that the majority of industry participants fail to acknowledge this.....and why should it change? the act also mentions the QFE adviser who I don't think would be part of this forum. On 8 July 2015 at 4:48 pm billy the broker said:
Whose interests are you trying to look after Barry?? The insurance agent,the client or yourself??? Since we have had compliance all I see is a revenue draining for what cause?? Bit of scare tactics and people making money of brokers who do a great job and get bled to death out of their pocket. Now comments like becoming and AFA (more money)!!Then possibly more mentoring so we are squeaky clean (at a cost!!). When what will come of it nothing, but the good old fat cats getting their suck of the Sav!! FMA are a joke as have dealt with them (great money value for me I might add). And this to get the so called rouges out of the business. Bit of a message then....some of these rouges are quite high up in the pecking order as they write a bit of bizzo and are deemed untouchable and to be honest their arrogance is up there too!!! The steady eddies are getting the short end of the stick as they always do. On 8 July 2015 at 5:02 pm b p said:
That's exactly my point pragmatic. Using your example, I go to a doctor and ask for treatment. Do I want doctor #1 who says I recommend these three treatments, and if that doesn't work we'll try this, and if that doesn't work we'try something else.
Or do I want doctor #2 who says I've got this treatment. It is fantastic. It also happens to be the only treatment my employer lets me use. If it doesn't work we'll just persevere with it and keep using it. Oh and by the way my employer makes money when I prescribe it.
Are you really suggesting the advice offered by doctor #2 is as good as the advice offered by doctor #1?
Really?
On 8 July 2015 at 7:32 pm traveller said:
even if you are an adviser with the necessary bits of paper, you are still a salesperson. For some people that may not hold water but in the end, you have to sell yourself to a client and continue to do so. A dedicated "sales person" may refer a client to you but you then have to sell the deal. And by the way, isn't this likely to add another level of costs to the client if two people have to get paid? On 9 July 2015 at 8:03 am Pragmatic said:
@bp: apologies, but I still don't understand your logic. Let me explain the concept of fiduciary duty:
I go to a doctor for the best solution to a problem. The doctor recommends the most appropriate solution for me - not him, nor his employer or supplier
I'm unsure what part of that is a mystery
On 9 July 2015 at 8:05 am Charity said:
The idea advocated by Barry Read is really terrible. This means that the large institutions who already dominate the market will be allowed to sell their products and they don't have to worry providing advice and it doesn't have to be suitable.
Do you think the consumer is really going to understand that they aren't getting advice and may not be getting what is really suitable for them.
What? Are we going in reverse here?
Banks and large insurance companies already have an advantage with respect to name recognition. Many of them are QFEs so they regulate themselves.
Now you're basically going to allow them to offer unsuitable (and perhaps expensive) products without any consequence? That's unleashing wolves among the sheep.
On 9 July 2015 at 9:09 pm b p said:
Pragmatic - I think you are willfully ignoring what you initially said. You say "all distributors / advisers / salespeople etc should operate within a single designation".
That is nonsensical as it is impossible for someone tied to a particular product supplier to achieve the same fiduciary standard as a true independent AFA. If the former can only offer a choice of (say) 5 balanced funds all provided by his employer then how can they claim to meet the fiduciary duty of care they have to a a client which is to provide the best product for the investor on the market, not the best product their employer allows them to offer.
There should be a different designation between AFA's who are free to recommend the products that best fit their customers needs, irrespective of the source of that product, and salespeople advisors, who merely offer the products their employer allows them to. Yet to the public they look the same - proposals and plans and disclosure statements and graphs etc, but one has no chance whatsoever of meeting a true fiduciary duty.
I'd go so far as to say the second type is a Clayton's AFA, the "independent" advisor you have when you aren't really having independent advice.
On 10 July 2015 at 9:36 am Brent Sheather said:
With so much movement of FMA staff between the FMA and QFEs it’s only a matter of time before the FMA becomes a QFE.
On 10 July 2015 at 10:49 am w k said:
@brent: Can't blame any adviser outside the QFE network to become suspicious that they are being being marginalised.
Got to also wonder why advisers outside the QFE network don't even get to be interviewed for an FMA job application.
Are these actions to the interest of consumers or is there a conflict of interest? Just asking.
On 10 July 2015 at 4:01 pm John Wood said:
Well done Barry on raising a very important topic. The MBIE is seeking guidance from market participants in its Issue Paper with the FMA also noting in their 2015 Strategic Risk Outlook the debate about sales and advice and whether or not any mis-selling of products is occurring. This whole issue is simply about disclosure and ensuring the investors or consumers are not disadvantaged in any way. It is clear from the Issues Paper that MBIE are seeking to draw a clear distinction between pure sales and pure advice and would like our thoughts on this matter. Given the lively debate that you have created Barry I hope all the respondents fire in their submission to MBIE so we create the outcome we are looking for. On 10 July 2015 at 4:33 pm Pragmatic said:
@bp: my stance remains - all advisors (irrespective of their designation, acronym or employer) must do the right thing by the consumer. Hope that helps to clarify things Sign In to add your comment
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As all industry folks have a fiduciary duty, then all distributors / advisers / salespeople etc should operate within a single designation. I'd opt for AFA as the acronym, with AFAs promoting themselves as specialists (or generalists) in certain fields. Irrespective of this, each AFA must have minimum qualifications to operate (ie: without grandfathering), and must achieve a required level of continuing education
I'm sure that there'll be many objectors to this, although it's time that the industry started operating as one to maintain & grow consumer confidence.