Lack of adviser voice 'scary'

Mike Newton, of advice firm Newton Ross, told Good Returns it was scary that none of the nine people chosen to develop the new code were financial advisers.

Wednesday, July 19th 2017, 11:44AM

Mike, what’s your take on the make-up of the working group that has been set up to set out the new rules for financial advisers?

I think it’s very strong in some areas but I think there are a couple of glaring weaknesses in there. There’s two aspects; one is that the new working group is looking at the application of the existing code to all people providing regulated retail/financial advice. It’s encompassing a much wider spectrum than the old one.

It’s discovering mortgages, insurance, as well as the investment side.

Exactly, yes. Whereas the old code was really just around regulating Authorised Financial Advisers. Conceptually, I think it’s a great idea, so I’m all for it. I certainly think it’s needed, but when you look at the terms of reference for the working group, some of the key things in there try to differentiate between the different types of advice. What’s advice? What’s product? What’s service? The biggest problem there is that the working group committee members really don’t reflect the skill set that’s required to deal with some of those issues.

There’s no practical experience - in terms of people doing face-to-face advice - in the group, is there?

That’s right. It’s obviously about regulating advice, or setting up a code around financial advice. There’s no actual financial advisers.

But how can these guys set up a code when they don’t actually know what people are doing in their day-to-day business?

I think some of them have very strong industry knowledge about product manufacturing and distribution. Some of them have a lot of expertise around taxation and manufacturing a product, but in terms of actual experience around delivering advice to retail investors, I just don’t see anybody there that can actually do that.

Do you think they’re going to be able to actually develop a code that is going to be workable for advisers?

They will probably develop a code, but whether it’s practical or not is a completely different issue. They can obviously go out there, obtain information and engage financial advisers, but there’s no-one on the committee that’s actually ever really practiced. One person there is an AFA and I understand has practiced overseas, but has no application for practicing inside New Zealand. The other aspect of it - and the thing I find most extraordinary – is that there is no independent financial adviser representative on the committee. They are all product manufacturers. Every single one of those organisations. There’s a fund manager on there, or a bank, or an insurance company; they manufacture and sell products.

Is this more of a push toward the big end of town taking control of the advice world?

Well, when you read it, it certainly is. When you look at the industry response, it looks very much as if the institutions have captured that end of the market. That’s what they’re doing. They’re basically controlling the regulations.

How worried should independent AFAs be about where this is going?

We are very concerned. The fact that you actually don’t have an advice practitioner on a working group that is setting standards and competency levels and training levels for advisers, and defining what advice is, I think is extraordinary.

How should the industry and the independent guys be looking at tackling this? Do you think they can still have a say?

Obviously, we’re allowed to make submissions, and the group are capable of coming and talking to us about our thoughts and views, so that’s all very positive. But to not actually have someone sitting there and representing the independent advice part of the market, debating those issues and providing the sort of contention that’s needed in a working group like that, I just find extraordinary.

It's also extraordinary, isn’t it, that you’ve got this whole new group and there’s only one person from the existing Code Committee there, so there’s no continuity?

I can understand that there are wider terms of reference, but really, those people have the experience of trying to develop a framework previously. Why wouldn’t you try and bring some of that expertise along with you? I don’t know. I would have thought we’d see greater representation or continuation of members. We have one, which is good, but it would be nice to have a lot more than that.

But that one person is from an institutional background.

There’s no practicing Authorised Financial Advisers. There’s just no independent advisers at all.

The other issue is the separation of sales and advice, and how they deal with that. That’s going to be a pretty big issue for the Committee, isn’t it?

It’s a continuing point of confusion for the whole industry, for the regulators and the FMAs – the difference between what is service, what is product and what is advice. What we’re seeing at the minute is a Committee that’s represented by product manufacturers that do have industry experience. They are selling their products to their clients. They’re not independent. There’s no independent advice provider that’s actually on the Committee.

Does it mean that people like you are going to be spending much more time doing submissions to another group around regulation of our industry?

We’re passionate about it. We try and make submissions on every new change and I think it’s important that we do, but because we’re a smaller organisation – we only comprise of eight people – how do we afford the time, energy and expertise to actually have a say? It’s a lot easier for the regulators to go to the big end of town, because they can make their people more easily available.

There’s nine members on the working group. They can go up to 11. If they did that, who should they put on there?

They should definitely put on some practitioners. I think they should put on two independent financial advisers, and at least one of those should be a Certified Financial Planner. If you’re a CFP, you represent the global recognition or pinnacle of being an adviser. They set the standards in terms of competency training and ongoing education. They already do that and live that. Why on earth wouldn’t you have an independent adviser that’s also a Certified Financial Planner represented on the Committee? It just doesn’t make sense to me.

It feels that this is a bit of a club for the big end of town. How worried should people be about that?

That’s obviously a conclusion you can draw just by looking at the membership. Most of them are product manufacturers. You’ve got two consumer representatives and a couple of other people have got some associated industry background, but the rest are all product manufacturers. I think it’s scary. There’s a real risk that we miss an opportunity to really provide a sensible framework for advice in New Zealand. It’s going to be very much driven by the manufacturers. I think that’s a poor outcome.

Tags: AFA CFP Code Committee Code Working Group financial advisers FMA regulation