Nagging and the definition of ‘financial advice’

Once upon a time we had this corporate guru come and talk to us about teams and communications.

Monday, August 28th 2017, 9:13AM 1 Comment

by Russell Hutchinson

They talked about how we get failures in communication a lot when we use the same words, but mean different things. The example given was a couple: one thought he was being nagged, the other thought she didn’t nag him. Separately, they were asked to write down a practical definition of nagging. She wrote down ‘asked a dozen times’. He wrote down ‘asked more than once’.

The same thing is going on right now in the arguments over financial advice law – the magic words ‘financial advice’ mean different things to different people.

Brent Sheather writes about the people in ‘polo shirts’ who can only sell one product for one company; they aren’t giving advice as he knows it. The law allows that to be called financial advice, because an opinion is given recommending a product considering the person’s circumstances. MBIE and our regulators see advice as a procedural thing, rather than a question of product choice. To be fair, they point to consumer surveys which shows that when consumers walk into a bank, they expect to be sold a bank product. On the other hand, they expect that when they talk to a financial adviser, they get some financial advice – which is a very big assumption, given that a lot of those ‘advisers’ only make ‘no advice sales’ – and that’s true in banks, but also true a lot outside of banks, too.

Some people don’t think that you can "give financial advice" unless you offer several products. The number at which you cease to be a ‘sales person’ and become and ‘adviser’ is something of a mystery. Most people agree that it is greater than one company, and at the other end of the spectrum, most courts agree that you do not have to consider every product everywhere in the world. Nor do you have to consider every other possible use for the money. You are allowed to limit the universe in some ways, provided you do it clearly. How many is enough? The old NZ Mortgage Brokers Association (now part of the PAA) used to require members to have agencies with at least six providers of lending to qualify. The Trowbridge report in Australia recommended that bank-owned advice channels be required to deal with at least half the insurers in the market (which would have been about ten) – but that recommendation was never taken up.

I like to think that some level of product choice is a good thing to have when seeking advice; whether the magic number is three, six, or ten, I’m not sure. But then there are those people who think that if you have anything to do with product, you’re conflicted. You must be fee only, and do no implementation. That’s like my accountants – they handle no money, apart from when I pay their bill. They just advise.

But whatever your definition of advice is, I’m willing to bet that your definition differs a bit from the one in the law. Fortunately, you are free to define what you think constitutes ‘good financial advice’ and tell that story to as many people as you can. Plus, you don’t have to wait till the Bill is passed.

Tags: banks Brent Sheather financial advisers MoBIE PAA regulation Russell Hutchinson