Opinion: Keeping adviser professionalism in focus

by NZ Adviser22 Jul 2016
The FAA review is a very positive step forward - for consumers and for advisers. Lack of simplicity, transparency and flexibility - issues that have hampered consumer access to advice and advisers in providing advice - have been well considered and tackled. 

Of course, there are elements of the recommendations that need to be addressed and/or clarified, but overall the adviser view has most certainly been listened to. Much of what the PAA has recommended in submissions and discussions with MBIE over the past 18 months has been incorporated and we look forward to supporting the ‘fleshing out’ phase with the Code Committee. 

Expanding the role of the Code Committee is the masterstroke of the final FAA recommendations. Creating the framework and tasking the Code Committee with putting the meat-on-the-bones, means the regulatory structure can evolve with consumer and industry needs without having to change the Act (at such short intervals). It also gives you – advisers – a greater opportunity to influence how regulation supports the practical realities of providing consumer-first advice. 

Here’s a snapshot of how the key recommendations support positive outcomes for consumers, advisers and advice:
Consumer clarity:
Supported by:
(1) the simplification of designations to Adviser and Agent;
(2) the removal of class and personalized advice and product category definitions,
(3) the expansion and simplification of disclosure requirements, and
(4) one Code of Conduct for all advisers. Simplification and transparency will provide much greater consumer clarity and will greatly aid in building public trust in advice.

Practical flexibility:
The expansion of the Code Committee’s role; one Code of Conduct for all advisers with varying Code standards to account for different types of advice and client scenarios; and similarly varying competency standards and education / training pathways for different types of advice - these all evidence MBIE’s intent to increase consumer access to quality advice by catering to the different practical realities of those who provide it. 

Competency and conduct:
The Code of Conduct will require training and education and compliance in some form or other, for all advisers. The important message for RFAs (who this principally impacts) is that it won’t be one size fits all; the requirements will be contoured to fit the specific needs of different types of advice, and there will be an appropriate transition timeframe. It’s another area in which the smarts of handing over greater scope to the Code Committee is evident – it gives us the opportunity to suggest practical options for different types of advisers to meet the new requirements.

Yet again, it raises the question: are we an industry or are we a profession? If we want more New Zealanders to trust and access advice, and if we want to grow the number of advisers available to provide advice, we need to make the shift to being a profession. And to do that we absolutely need minimum competency standards – a structure that clearly communicates to the public that advisers are trained experts. 

A key sticking point for the PAA…
We are concerned that MBIE has sought to shift away from adviser professionalism – a shift which fundamentally undermines the purpose of the Act. Of particular concern is the policy recommendation to permit agents (of an institution) - who have no personal professional accountability - to give the same advice as a financial adviser. 

Personal accountability is a key strength of financial advice; it is integral to providing client-first advice; and it essential in building consumer trust in advice and financial advisers. Furthermore, different structures of accountability would create an unequal playing field between those who choose to put skin-in-the-game and back the advice they provide their clients, and those who provide advice without personal accountability. This policy recommendation confuses what could otherwise be a very clear framework for consumers. 

The Act needs to require personal accountability for anyone giving advice, unless they’re advising on their employer’s own product. Any other outcome would be unacceptable. We raised this concern with MBIE earlier this week and are hopeful that that this will be addressed as the detail is further developed.

Overall a very encouraging framework with much ‘fleshing out’ to come over the next year. I encourage everyone to read the final report – pages 61 to 77 will give you an outline of the primary recommendations. Don’t fall into the trap of making assumptions at this point in time – there’s too much ‘meat-on-the bones’ needed for that as yet; share you views so that we can bring those to MBIE and the Code Committee; and get in touch with any questions you’d like clarified.

Rod Severn is the CEO of the Professional Advisers Association (PAA). 

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