It's Been Sometime...........

…since the Laird burst into print about anything. Unusual, I hear you murmur, for this garrulous Jock to be silent for so long but the truth is that, as my client numbers increased - and the diversity and complexity of commercial involvement extended - I found myself in danger of indulging in mere self-promotion, or expressing views that might be regarded as conflicted.

Generally speakling, that’s still the case, but as certain industry-related issues arise, I feel compelled to hit the keyboard again - I owe the NZ financial services industry a considerable debt of gratitude and contributing some perspective may be the only material way I can add value (hopefully) and give something back to the industry and its stakeholders.

Ok, dear reader, with that introductory blurb out of the way, let me turn to the reason why this missive has arrived in your inbox.

The introduction of the new regulatory regime has generally gone smoothly - apart from some errant souls who have not attached themselves to a licensee. In this context, I’d like to focus on Financial Advisers as a specific sector of the industry, ignoring Nominated Representatives, if I may, as they are de facto vendors of products at the behest of their Lords and Masters. Not to imply that they do not provide a useful function for a part of the consumer market, but Nom Reps are not the subject of this diatribe.

Since March 15th 2021, Financial Advisers must be operating under their own or someone else’s license, and be able to meet their obligations under FSLAA, except for the wiggle room provided around obtaining a suitable qualification. FAs are also subject to the new Code of Professional Conduct as published.

With licensing obligations, a more extensive legislative framework, and a comprehensive Code of Conduct to observe, you might be forgiven for thinking that FAs have enough on their plate to deal with meantime. Add in the biggest challenge to NZ’s post-war economic stability in the shape of a global pandemic, and the need to conduct Business-As-Usual in some way, shape, or form, then it’s a fairly safe bet to assume that FAs are not short of challenges at present!

However, not to be accused of resting on their laurels, lawmakers have decided that Banks and Insurers should be required to up their conduct and culture game - and rightly so, given some of the findings of the regulators’ investigations. In their enthusiasm to establish Fair Conduct obligations on the Financial Institutions, our employees in the Beehive have exposed FAs to even more regulatory burdens - as if more were needed!

Imposing oversight and supervisory requirements by these institutions over FAs providing regulated financial advice is simply overkill, unnecessary, and intrusive - more of that later.

I can appreciate the need for FAPs to furnish product providers with an annual report, based on uniformally developed standards, confirming compliance with the governing regulatory and legislative requirements. I can see the relevance of providers conducting detailed analysis of FAPs production statistics and questioning results that appear to deviate from the norm - e.g. excessive lapses, terminations, and/or declined claims. But some of the providers are taking it upon themselves to go directly to the FAs clients to interrogate said clients on the standards of conduct of the FA, the suitability of the solutions provided, and the level of compliance with the providers assumed and proposed Fair Conduct programmes.

And here’s the reason for this epsistle - the value of any FAP enterprise is based in the interpersonal relationship Financial Advisers have with the clients under their care. Bringing product providers into the equation puts the value of the adviser/client relationship at risk and should be rejected by all FAs and FAPs.

The IT types will tell you the value is in the CRM system or in the database - Management gurus will tell you it’s in the latest theory of Kaizan, Quality Circles, or Balanced Score Cards - or whatever. But while these are factors in any sustainable financial advice business - if there is no discernable, enduring, and trusted relationships between clients and advisers, all else is meaningless.

Any measure - legislative or regulatory - that results in a distraction to, or a dilution of, this relationship should be strenuously resisted by Financial Advisers and their representative bodies.

Consumers will not be well served by having multiple product providers accessing clients and consumers at will - bombarding them with inappropriate marketing material, special offers, free gifts, and temporary discounts - all of which only serve to confuse consumers, divert attention from Code-driven professional advice, and undermine the trust between the Financial Adviser and his/her client.

Communication specialists always tell you to end an article with a call to action. Well, who am I to question that wisdom?

MBIE’s page where submissions can be made is here - so hit the keys, reject Options 1 - 4 as simple duplications of existing legislation, select Option 5 and modify appropriately to defend your clients, your business, and your future.

The Laird