Bill's quality and quantity aims 'a possible conflict'
A working group tasked with developing the new code of conduct for financial advisers will have to juggle two potentially competing aims of the new legislation.
Wednesday, September 13th 2017, 6:00AM 
3 Comments
by Susan Edmunds
The new Financial Services Legislation Amendment Bill is intended to improve both New Zealanders’ access to advice, and the quality of the service provided.
Financial law expert David Ireland, of Kensington Swan, said there could be seen to be a conflict between those two aims.
A challenge for the working group would be to ensure they improved both with the new code, he said. “And a drive to increase quality doesn’t cut off availability.”
Institute of Financial Advisers chief executive Fred Dodds said some of the “accessibility” question would be answered with information-only services from bigger providers, or roboadvice solutions. “That’s seemingly being seen as the answer to everyone’s worries.”
But there could be quality concerns with those, he said.
“We know that information-only has a quality issue, they can only go so far – when does sales become advice? That’s a quality issue. Roboadvice hasn’t been tested for quality – where is the competence testing for the algorithms?”
He said independent advisers’ numbers were limited, which would necessarily limit the amount of advice they could give.
The quality of advisers’ advice would need to be increased. “Over time we need to continue to raise the bar until we get to the stage where we are seen as a recognised profession.”
Lawyer Sue Brown said it should be possible to achieve both aims.
"The fundamental keys to quality advice are ensuring investors can access ‘right-sized’ advice that meets their needs, that they understand the service they’re receiving, and that their adviser, whoever or whatever they are – financial adviser, nominated representative, financial service provider through robo, is competent to provide it. These factors are also key to making sure there are enough advice providers to meet that need. I see those two sets of factors as consistent, not contradictory."
The Ministry for Business, Innovation and Employment was not concerned.
“We consider it is possible to ensure both that financial advice can be accessed and that it is of a good quality,” a spokesperson said.
“The Financial Services Legislation Amendment Bill seeks to regulate financial advice with a view to ensuring the availability and quality of advice for those seeking it. The Bill removes regulatory boundaries, making it easier for those giving advice to respond to their clients’ needs, and introduces universal duties of conduct, competence and client care to improve the quality of advice.
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As an aside, it beggars belief that Sue Brown has been appointed to the board of Financial Advice New Zealand.
Vikram Pandit ex Citigroup says 30% of Bank Jobs May Disappear in Next Five Years
Replaced of course by technology
So perhaps the good jobs at the big banks hoped for by some people at the MBIE and FMA will not eventuate after all
And the great robo advice revolution (no, it’s not advice) won’t work too well /become unpopular when investors pull out (fear) during the next downturn, and lose heaps.
That certainly won’t give investors confidence in markets, even if it’s partly their own fault.
Wheels turn too – I hear books are making a comeback, so perhaps human advisers will survive the robo AIM ( auto investment machine) after all
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I think David Ireland has it wrong when he implies that there need be a trade-off between quality and availability. The only reason that a trade-off might be necessary would be to permit a continuation of the standard bad behaviour by vertically integrated organisations whereby they only recommend their own high cost products. At least the FCA has identified this issue as a threat to good advice. Our firm has just three advisors and we are able to consider a wide range of managed funds, equities and bonds and thus endeavour to put client’s interests first. The idea that vertically integrated firms with billions of dollars in capital cannot do that is farcical. The actual reason they don’t is clear – to maximise profitability. Incidentally just this week I met with an existing client who also had a large portfolio with a vertically integrated provider, ANZ. Some 86% of his portfolio was invested in ANZ products all of which had fees 2-3x that of the active and passive managers we use. The portfolio is worth over $1m so there shouldn’t be an availability problem for this sort of individual but he still got a low quality solution. Needless to say ANZ just lost another $1m in FUM.
The other point for readers to consider is how would Sue Brown know whether it’s “possible to achieve both aims” when she has never been a financial advisor. In fact my opinion is that her knowledge of the area is even more deficient than the average person as she has worked at the FMA. Her FMA bias is evident with her comment that “the fundamental keys to quality advice are ensuring investors can access ‘right sized’ advice”. That is the standard cop out phrase that vertically integrated providers, FMA employees and the MBIE consistently roll out. What this statement actually means is that “if you haven’t got enough money you are going to get crap advice”. Reminds me very much of that ridiculous polo shirt comment from you know who not so long ago. I would ask Sue Brown….. would Sue Brown be happy with “right sized” advice? Does Sue Brown invest with a high cost provider or does she think “right sized” isn’t appropriate for her? The ignorance continues with her comments “I see these two sector factors as consistent, not contradictory”. Similarly the MBIE has no interest in advocating for retail investors - all it wants to do is keep the big end of town happy and those job options open which probably isn’t a bad idea given that a change of government is on the cards.
The best way of ensuring that “right sized” advice is good advice would be to compel the MBIE and FMA employees to invest their own money with the highest cost provider of “right sized” advice. A bit like the Russian pollution laws that required Russian paper mills to take water down-stream from where they discharged it. Incidentally good on Mary Holm this week for publicly disagreeing with the FMA and showing them up as the conflicted apologist for the big end of town that that organisation frequently is. Financial advisors and their member organisations should be lining up to meet with the new Labour MP with responsibility for the FMA and MBIE after the election with a dossier of evidence of bad behaviour and recommendations for regime change from top to bottom.