FoFA New Zealand - Not Australia Bound?
Attending the Financial Services Council (FSC) event last week on the Future of Financial Advice was as interesting as it was enlightening. I must confess to some concern that the title of the event - FoFA - was an ominous portent that we may be following the potentially disastrous path that the Australian industry is travelling, which is based on inconclusive research and ill-considered recommendations.
Whilst the Australian developments were not necessarily discarded out-of-hand, there appeared to be little evidence of any party willing to adopt the ideas of our colleagues across the Tasman.
The product providers represented at the event - which intuitively would appear to gain most by the Trowbridge Report commission recommendations - were fairly cool towards the proposed Australian measures, and it is heartening to encounter some intelligent, strategic thinking at senior management level in the Life Company space.
Equally encouraging was the strong message delivered to the Minister of Commerce, the Hon Paul Goldsmith, that segmenting advisers based on the products they recommend to their clients is wholly inappropriate.
Of course, when the draft legislation was first presented before 2011, there were plenty who advised against this, but in the rush to get something on the statute books, the advice was largely ignored.
So the one reference from the Minister that stood out for me was the suggestion that the industry might get frustrated in the consultation period, given the range of stakeholders to accommodate.
Well, Minister, I believe that the industry will get frustrated - but only if nobody listens.
There is a wealth of knowledge and experience at MBIE's disposal, and most, if not all, stakeholders seek a stronger, more vibrant, well-regulated industry. This is particularly true of those who earn a living from the financial services industry, either by the manufacture of product solutions, or by advising on the suitability of those solutions.
So there are three specific areas that I believe could be usefully addressed in this review -
1. Access to advice - the existing requirements need to be simplified so that full personalised advice is required to follow the internationally accepted 6-step process. In addition, a limited advice model should be introduced where a client needs advice and guidance on a specific issue such as mortgage protection, family cover, etc. Finally, a 'no advice' model should be developed, so that consumers who have decided what they want, do not wish to receive advice, can be provided access to an entity or organisation that will process their requirements. This 'execution only' or 'no advice' category exists already overseas.
2. RFA v AFA - consumers do not understand the complex nature of regulation, and the artificial demarcation that currently prevails only serves to add to the confusion. The nature of risk products puts a client in far more potential danger than the mere loss of a few thousand investment dollars. Losing on an investment can be irritating to the wealthy; incorrect application of a Corporate Share Protection Scheme can cause companies to collapse, create bankruptcy, unemployment, and financial destitution - yet there is no minimum standard of knowledge required to advise on the latter. Minimum standards of education and knowledge are essential for the Adviser industry to gain the trust of consumers. This does not guarantee the quality of advice, but by setting minimum standards, the consumer is justified in assuming that the adviser is qualified to provide guidance and advice on their financial affairs. For those highly experienced advisers with years of accrued knowledge, testifying to their competency in matters relevant to their practice will not be a problem.
3. Structure - finally, and perhaps more controversially, I picked up some rumblings around the extent to which the regulator - the Financial Markets Authority - can develop and/or interpret the regulations decided upon by our elected representatives, and their Civil Service assistants. This issue needs more debate and consideration - and certainly needs some light cast over the concerns expressed. Should we be comfortable with the enforcer also being the judge and jury? Is it appropriate to contemplate our Police Force being in charge of hearing and adjudicating on cases, then being provided the wherewithal to hand down a sentence? I understand that this is currently the case with the FMA, and it is certainly an issue worthy of attention in the review process.
We are still in the early stages of the Financial Advisers Act Review, and I suspect many stakeholders have still to formulate their views on the subject. I also suspect that this event will be the first of many, and well done to the FSC for staging the discussion, and for getting the Minister to attend to share his views.
This was a relatively gentle introduction to the debate - I suspect it may get more animated as the issues emerge and the positioning of the various stakeholders becomes apparent.