It's like déjà vu all over again...
Attributed to the baseball coach Yogi Bera, this quote could apply to the current delay in the process of the Financial Services Industry legislation. First time around, last minute changes saw the introduction of Qualifying Financial Entities confuse a complicated structure of adviser and product categories even further.
This time, with deadlines missed, some suspect last minute changes to the Cabinet Paper are in the offing.
To be honest, I still lack consumer-level clarity about how a bank employee can reconcile client best interest (or whatever words you choose for this concept) while only having access to his/her employers products.
Surely a bank (or any other vertically integrated organisation) is entitled to retain the services of its employees or exclusive contractors to promote its own products. But accepting that premise, it is also impossible to serve two masters, i.e. the client and the employer.
So given that vertically integrated companies have every right to distribute their own products, it seems a nonsense to make their employees subject to a Code of Conduct that requires client interest to be placed ahead of their employer.
So here's my solution-
- Those individuals retained to promote, recommend, and distribute products on an exclusive contract for/of service are designated Product Advisers, e.g. Westpac Product Provider, ANZ Product Provider, etc. Product Advisers are not subject to the client best interest concept, but to an appropriate suitability test. An attribution test should be applied, so that if 80% or more of any adviser's business is placed with one product provider, they are considered to be a Product Adviser.
- If we are intent upon entity licensing, which it seems we are, then diluting the concept by having different categories of advisers (i.e. Financial Advisers and Agents) only serves to maintain the current confusion. Those individuals who have no exclusive contractual restriction should be designated Financial Advisers and are responsible to the licensed entity to which they are attached for their adherence to the Code of Conduct - which includes the client best interest concept.
This suggestion has only two categories of adviser - not three as proposed - and provides the consumer with a clear demarcation and identification of status upon which to make a more informed judgement. The disclosure requirements of each category strengthen the lines of demarcation for the consumer.
So FMA licensed banks and other QFEs retain the services of Product Advisers, while Financial Advisers operate under the FMA's entity licensing regime, answerable to a higher level of accountability due to the extended scope of their knowledge and understanding of the wider market.
It is also perfectly feasible to accommodate the title of 'insurance broker' in this proposal to maintain the widely accepted identity of Fire & General insurance advisers.
While seeking uniform compliance across the industry has theoretical merit, it needs to be recognised that the functions of a Product Adviser, and those of a Financial Adviser are quite different and therefore need to be provided with different frameworks with which to meet their regulatory obligations.