Advisers tackle client-first question

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A very useful session of industry commentators was held last week at a forum initiated by the IFA and PAA on the contentious subject of “putting the interests of the client first” versus “acting in the best interests of the client”, writes IFA chief executive Fred Dodds.

Friday, October 28th 2016, 5:59AM 1 Comment

Fred Dodds

As you would expect, there was a range of views expressed. But by the end of the discussion it was agreed we had arrived at a reasonably common landing point.

There is no groundswell to change “putting the interests of the client first” as the paramount rule for the delivery of financial advice.

Other jurisdictions have different standards, but in a number of jurisdictions that have “best interests” as their headline standard, the concept is limited or watered down by other pieces of regulation e.g. Australia has legislated for best interests; however nowhere do they explain what best interests actually is – rather they provide a safe harbour of seven steps for an adviser to follow, and if they do, they will be deemed to have met the best interests duty.

The fact of the matter is that Government has determined to impose a statutory conduct obligation on the providers of financial advice to place the interests of the consumer first. That is to be the standard for all advisers, not just AFAs.

There was widespread support for the latest iteration of the Code of Professional Conduct for AFAs, with the new Code Standards 8 and 9 providing a useful basis for the statutory obligation.

The critical issue is to ensure there is clarity as to what “putting the interests of the client first” means in practice.

It was felt that more work is required in relation to the status and regulation of other people who are not financial advisers in terms of the Act, but who nonetheless assist consumers with financial decisions.

This would cover points such as:

• What health warnings should be required around any restrictions on advice?
• How would conflicts of interest be best managed, particularly when obligations can be required in multiple directions such as to customers, employers and shareholders?
• Should some advisers be using a label of “agent” or “salesperson” rather than adviser?

What was also agreed was that consumer access to professional advice is critical. The duty chosen and the way that it is interpreted and applied in practice must be positive for making advice more accessible in New Zealand.

IFA and PAA look forward to working with the industry and officials to bring this into reality for the benefit of consumers.

Tags: client first IFA PAA

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