Sales v Advice
Advice is defined as giving guidance or recommendation offered with regard to prudent action. Guidance and recommendation implies that that there is a choice of alternatives to be considered and that an opinion is offered as to the most appropriate course of action.
A sale on the other hand, is defined as the exchange of a commodity for money, and does not imply that there is a range of alternatives from which a recommended selection is made.
In the context of the evolving financial services industry regulatory environment, a distinction needs to be made between the differing functions.
While a distinction is desirable, the validity of both functions is acknowledged.
There should be no regulatory barrier to vertically integrated organisations conducting both product manufacturing and distribution functions.
However, the distribution function within such organisations should be identified as “sales” and not “advice”, as the former always includes a product transaction, the latter may not.
Even where a product solution is recommended in the advice process, the consideration is exchanged for the advice received as opposed to the product purchased.
It is important not to confuse the driver of the activity in each case. The nature of the relationship and the allegiance of the intermediary involved are critical.
In the sales activity within the vertically integrated organisation, the intermediary’s primary allegiance is to the product manufacturer.
In the advice activity, the intermediary’s primary allegiance is to the client – irrespective of the source of remuneration.
This allegiance is endorsed by compliance with the Code of Conduct.
The disclosure regime should require both the Sales Intermediary – identified as an Appointed Representative – and the QFA to declare the means and quantum of remuneration – salary, bonuses, fees, brokerage, or a combination of both – as well as any ‘soft dollar’ incentives provided
Consistent with the concept of providing the consumer with access to the necessary information to make an informed judgement, disclosure of status, obligatory or contractual relationships, and remuneration structure, quantum and source should be included.