CWG proposals doom independent advisers: Association
Financial Advice NZ says proposals from the Code Working Group developing the new code of conduct for the industry could eliminate large sections of the “independent” advice force.
Wednesday, May 2nd 2018, 2:32PM 
1 Comment
by Susan Edmunds
It made a submission to the Code Working Group in response to its recent first round of proposals.
The new adviser association said the proposals as they stood would result in a widescale restructure of the industry, and the “dumbing-down” or even elimination of advice in many engagements.
“This will result in reduced competition and choice for the public of New Zealand, lower standards of customer care and compromise the ability of New Zealanders to access good advice."
The association said that effect was created by the proposals broadening the generally accepted definition of financial planning and materially extending competence obligations for those deemed to be providing “financial planning” advice.
“Many current life, disability and health insurance and mortgage advisers would be deemed financial planners under the proposed new definition.”
Those advisers, if currently operating as RFAs, would be required to complete a degree and diploma if they wanted to continue to offer their services in the new advice environment, as the proposals currently stand.
“This will force many practitioners towards what is being described by the consultation paper as product advice,” the association’s submission said.
“There are generally accepted international standards and definitions of what is meant by Financial Planning which, in our view should be adopted and recognised in New Zealand. Using this internationally recognised standard, we are supportive of a higher educational standard (level 6 or 7) for Financial Planners. This would only apply where the advice covers the multiple and complex interrelationships of cash, debt, wealth, risk and estate planning generally covered by financial planning. Principles-based approach. Ensuring that the proposed code is developed from a principles-based methodology to ensure that compliance burden is proportional to the nature of the business.”
It said the idea of “in-aggregate” competence was also a problem – advisers could be said to have met the educational standards if their provider’s systems “back-filled” their output. The association said this was merely allowing the QFE model to continue and level five should be a minimum standard for all advisers.
“It allows personnel in the larger organisations not to have qualifications whereas advisers in the smaller and one-person adviser businesses will have to have them.
“This does seems to run counter to MBIES’s view of creating a level playing field.”
The concept of product advice was also problematic and could confuse sales and advice, the association said.
The code needed clear delineation.
“If the nature of the engagement is to recommend and implement a product – this is a product sale (not product advice). Where the engagement entails a needs analysis, evaluation of alternatives which may culminate in the recommendation of acquisition, disposal or restructuring of a product then this is clearly financial advice.”
That was exacerbated by a seeming shift away from a principles-based system to a more prescriptive approach, the submission said.
Good advice and the advice process should be the overarching theme of the code, not good advice outcomes.
“There are a number of positive elements, but we are concerned about some material shortcomings presented by the consultation paper. In our view these shortcomings will undermine the goal of good advice - the overarching theme of the proposals. Working closely with the CWG and regulator so that the adviser point of view is well understood and addressed, will be crucial over the coming months and will be a major focus for us,” said Sue Brown, chair of the Financial Advice NZ establishment board.
“On this important point, we are working with the Code Working Group (CWG) in convening an advisory group to provide input into the development of the draft Code. The advisory group will comprise adviser representatives from all sectors - risk, lending, investment, financial planning and general insurance.”
She said the association’s goal was that there was a strong adviser voice heard to achieve a constructive regulatory outcome.
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If only that thought had dawned on your advocates a few years ago, we might have been able to get a more small adviser friendly regime. in particular, I think very weak advocacy by them in the sales v advice debate was what lost our side that battle. Now they are bleating about that outcome.