2 Recommendations for Advisers to Send to MBIE
The Exposure Draft of the proposed Bill to revise the Financial Adviser Act calls for submissions to be provided before 31st March.
Stakeholders can stay silent and bear the consequences - unintended and otherwise - or speak up, send submissions to MBIE, and at least make an effort to request amendments to the Draft.
The first issue to contemplate is the use of the term "Financial Advice Representative".
MBIE appears to be confused about the functions carried out by non-aligned advisers, and those retained by product providers to sell their in-house products.
To check this, please refer to the schematic on page of 18 of MBIE's document "Consultation Paper - New Financial Advice Regime". In the boxes headed, "Financial Advice Representative" and "Financial Adviser", both are deemed to "give financial advice".
This is incorrect in the case of the vertically integrated organisation (VIO), as those retained by such an entity are there to sell the company's own products. They look for clients to fit the in-house product; in direct contrast, financial advisers seek market-wide products to fit the client.
Recent discussions suggest that those drafting the Bill were unaware of this difference.
Consumers were unable to distinguish between AFA and RFA and the Draft proposal only serves to extend this confusion,
Recommendation to pass on to MBIE before 31st March - "Change the term Financial Advice Representative" to "Financial Product Representative".
The second issue to consider revolves around the Code of Conduct and Financial Product Representatives (in anticipation of common sense and consumer clarity prevailing).
The Draft contains the provision for all client-facing practitioners to be subject to the Code (see p. 37).
Also, there have been industry voices raised in favour of having VIO Product Representatives subject to the Code, and the phrase "level playing field" has been bandied about as if this is some guarantee of fair play and behavioural integrity. (To see the reality of life under an all-embracing regime, refer to the actions being raised against the Wealth Management units of just about every major bank in Australia).
From a consumers perspective, subjecting VIO reps to the Code places them in the same space as Financial Advisers, and lowers the credibility of non-VIO advisers who, as a matter of course, provide research-based recommendations drawn from the universe of financial instruments and solutions available in the domestic and international markets.
Furthermore, VIO product representatives will find it problematic to comply with a Code of Conduct that holds to the 'Client First' principle. As Product Representatives have no idea of what is available beyond their in-house products, they cannot attest that the "Client First" principle has been observed.
Recommendation to be passed on to MBIE before 31st March - "Remove Financial Product Representatives from the Code of Conduct obligations".
While this last recommendation may seem intuitively unfair, compliance with the Industry accepted Code of Conduct is what sets Financial Advisers apart, and the nascent Financial Advice NZ should take up the call on behalf of their members and all Financial Advisers to mount a campaign to bring this differentiation to the attention of the general public.