Faafoi considering complaints
Commerce and Consumer Affairs Minister Kris Faafoi says he is considering the correspondence he has received relating to the Code Working Group.
Thursday, April 19th 2018, 6:00AM 
2 Comments
by Susan Edmunds
It was reported this month that no complaints had been received at that time about the group or its composition.
The group is developing the code of conduct that will apply to all advisers under the new regime, and is conducting a consultation period.
There have been claims that the code working group (CWG) has shown favour to big providers through its proposals, at the expense of small advice practices – and allegations that is due to the make-up of the group. There are no independent advisers among its number.
Advisers were surprised that Faafoi had at that point received no complaints. “Faafoi would have to have been unconscious not to notice the problems with the CWG,” Brent Sheather wrote.
Murray Weatherston wrote to Faafoi that same day, telling him there was a major problem with the composition of the group.
“I don’t think many of the CWG have actual front-line financial advice experience.”
Graeme Lindsay also complained to the minister: “The members of the CWG clearly represent the vertically integrated organisations (VIO). There is no representation of the several thousand practitioners who daily advise New Zealanders about their financial affairs. The VIO representatives have a clear agenda that is contrary to the best interests of independent advisers and consumers!
“I have been a life insurance adviser (agent and broker) for 49 years. If the proposals currently under discussion are passed into law, I, amongst many others, will leave the adviser force. The result of the departures of a large number of mature advisers will be a significant reduction in availability of quality independent advice for the people of New Zealand."
Chris Hardcastle said he, too, had complained in writing to the minister.
Faafoi said he was considering the correspondence and what action might be required.
“More generally, I have openly stated my expectations both of the working group and of the sector: I would like to see us all contribute in order to achieve a workable and robust code because financial advice provided to consumers has a huge impact on their lives.”
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Comments from our readers
Dear Mr Faafoi
You are new to the area of retail financial market regulation so I am not sure you appreciate the extent to which the National government has consistently implemented regimes which favour vertically integrated organisations to the detriment of retail investor outcomes. You will be aware that a number of former National party members now work for banks. The new Labour government has a chance to remedy these issues and that responsibility is sitting on your shoulders at the moment: the Code Working Group is dominated by individuals who work for vertically integrated providers which is not surprising as the CWG was appointed by Jacqui Dean. As a result nothing you do or say will mean that the CWG’s determinations will address the issues impacting retail investor outcomes. The CWG thus needs to be refreshed by you.
The other thing the Labour government needs to do, to ensure that client’s interests are put first rather than after banking profits, is to refresh the MBIE. The MBIE has consistently bungled regulation since 2008 in such a way that vertically integrated providers profitability is not impacted.
To be quite frank the underlying issue causing many of the unsatisfactory outcomes for retail investors in NZ and Australia is the fact that product origination and "advice" cannot be properly achieved by the same entity ie vertically integrated providers. To achieve independent advice the law needs to enforce a split of commercial banking from advice so that advice truly is independent of product origination. America did this back in the 1930's thanks to the Glass-Steagall Act. We need our own versions of Glass-Steagall in NZ and Australia. You cannot "manage" a conflict like this as the current proceedings in Australia illustrate. I don’t expect the Labour government to implement Glass-Steagall immediately however to do your job properly you should have an appreciation of the logic behind Glass-Steagall.
If any of your staff wish to discuss this please contact me. My firm manages $1bn for retail investors and, unlike many in the industry, I am un-conflicted. Indeed the worse my competitors behave the more it improves my firms comparative advantage however that is not the point.
Regards
Brent Sheather
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To be fair to the Minister though, he is not responsible for the internal deliberations (e.g. the Consultation paper) of the CWG - he only gets involved when they deliver him the proposed Code later on in the year.
In the meantime, he can simply keep repeating his expectations of CWG consultation.
And what else was the Minister going to say anyway? - we were never going to get anything like "I have considered the handful of complaints received and my Department have advised me to ignore them as the ravings of the deluded and the disaffected?" [Not in public anyway. Source:Yes Minister.]