Protect advisers, select committee told

The select committee considering the Financial Services Legislation Amendment Bill has heard advisers’ concerns that the industry is being “deprofessionalised”.

Wednesday, May 9th 2018, 6:00AM 1 Comment

by Susan Edmunds

The Economic Development, Science and Innovation Committee is currently hearing oral submissions.

Fred Dodds, speaking on behalf of Financial Advice NZ, is one who has delivered a presentation.

He told the committee that advisers were increasingly important to New Zealanders, and the public should be able to trust that those they turned to were proficient, knowledgeable and compliant with any relevant obligations.

But he said the law so far had not served the industry well.

“Prior to 2010 when the FAA Act came into force the institute had well over 1000 members and importantly some 450 of them had completed pinnacle-mark qualifications which required a level seven base standard.

“The FAA introduced the authorised financial adviser and registered financial adviser designations. There we around 8000 advisers at that time – 2000 mainly in the fire and general area. The FMA thought that there would have been 4000-5000 AFAs but they got only 2000.”

He said that was because the RFA option was less daunting, with no adviser business statement, study, returns or disclosure required.

“Worse, it also stopped dead advisers who were on the journey to higher qualifications to attain only a level five qualification and have the mantle authorised financial adviser bestowed on them. Even the banks who mostly had a requirement for their investment advisers and private bankers to complete the Massey Diploma and go on to CFP have stopped this unnecessary time, and cost – just do level five. Is that professionalising the industry? We think not.”

He said the new rules were making it worse – the code working group has suggested that under the new regime advisers could be able to meet their qualification requirements in aggregate with their provider. People working for a large business would be able to rely on streamlined processes to backfill any gaps in their competence.

“We believe this concept is to support large institutional delivery,” Dodds told the committee. “There is no client focus with this.”

He said the idea of “product advice” as suggested by the code working group was wrong, and also catered for vertically integrated providers.

“Where a single issuer product or products are being provided to a consumer this does not constitute advice as a consumer would expect and calling it so is misleading. It is dangerous to legitimise sales as advice by creating this concept.

“This situation is glaringly obvious in the huge transfer of KiwiSaver schemes which is always over 100,000 each year. That volume happens mainly in bank world as consumers are asked – ‘would you like your KiwiSaver balance shown on your bank statement’ – switch. But an adviser has to write a report which considers the differences between one scheme and another. Fair? Not likely.”

He said the idea of “product advice” would leave consumers exposed to unnecessary risks. “Let’s raise the professional bar for all financial advisers.”

Dodds said the exemptions for other professions that gave financial advice in the course of their business, such as accountants, should be tightened.

“We know from our member’s comments and feedback that some persons in these exempted occupations just do not have sufficient competence, knowledge and skills to provide suitable advice.”

Tags: Financial Services Legislation Amendment Bill Fred Dodds IFA