Professional Advisers Association board member, Angus Dale-Jones goes in-depth on some of the key recommendations made by the PAA in their Options Paper submission.
With the FAA Review moving closer to completion, Professional Advisers Association board member, Angus Dale-Jones goes in-depth on some of the key recommendations made by the PAA in their Options Paper submission.
One of the biggest challenges for the advice industry is the perception consumers have of advice. How has the PAA submission addressed this?
Lack of clarity for consumers has marred the reputation of advisers. Confusion relating to designations – RFA, QFEA and AFA, category one product, category two product, personalised advice and class advice – and the lack of distinction between advice and sales, has had a detrimental impact on the reputation of advisers, and has created barriers to consumers accessing financial advice.
Our view is that the reputation of financial advisers will be improved if these multiple divisions are removed and if advisers are seen at law as one and the same.
We think additional clarity would come from broadening the concept of sales. In our view, the perception of advice is tainted when what is essentially a sales function is labelled advice. We’ve worked hard to try and limit who this would apply to, but we do think in the case of big institutions, many people are performing a sales function, and should therefore no longer be treated as a financial adviser.
Clearly distinguishing between sales and advice means that we as an association can do more to promote what a fully fledged financial adviser offers consumers.
Removing designations and changes to the Code would have an impact on RFAs. What has the PAA recommended to manage this?
Just to be clear, the PAA has not recommended that all advisers become AFAs under the current structure. We are recommending a revised regime.
It is essential that there is an adequate transition period for RFAs. One of our suggestions has been to use CPD over a period of three to five years from the start of the revised regime. This would mean that those who do not already have advice qualifications, can transition in using their CPD.
We have also made it very clear that while the Code would apply to all advisers, there would need to be flexibility both in terms of competence standards and advice conduct. We don’t want an environment in which everyone is forced to be educated in the same way. This is very much in line with the current direction of the Code.
What is the view of the PAA regarding whether advisers should be regulated as individuals or via the business they work for?
The business approach to regulation is common in other countries, for example Australia. We take a different view, and one that we believe both supports individual professionalism and distinguishes the flexibility of the New Zealand environment from other jurisdictions.
Genuine advice is intimately linked to relationships and the qualities that an individual – not a business – brings to the table. We want consumers to know that they are dealing with a human being, not a faceless organisation; that the qualities of that human being in delivering advice are important.
For these reasons we believe that the primary method of regulating an adviser should be at an individual level, not at a business level. We pride ourselves on having in New Zealand an industry that is focused on individual professionalism. Recognising qualities at an individual level is essential in sustaining and growing that.
How would compliance work in an environment where all advisers were recognised at an individual level?
We think there is a real opportunity to create a participative compliance process, rather than a catch-you-out compliance environment. Our recommendation is that professional associations facilitate a peer-review process for advisers. Instead of everyone being subject to random audits by the FMA, we would like to see a system of periodic peer reviews in which advisers can benefit from a more reflective view of how their business is operating.
From the FMA’s perspective, they would have comfort that someone independent is having a look at how each adviser operates. From the adviser’s perspective, peer-review would be a proactive business development tool, not only a compliance measure, and would provide insight about how their processes line up to the ideal based on practical, advice relevant experience. This would be a core function of professional associations – each performing a key role in facilitating the peer-review process.
The PAA have also been working with the Code Committee – what is a key outcome you are hoping for from this consultation?
An area of particular interest for the Code Committee is what they call Limited Advice - where an adviser is only talking about one aspect of a client’s financial situation, not the whole financial plan for their client.
This area has been a bit controversial and confusing for advisers because the Code and the Law is often read to mean that you have to do full-checking on a client’s financial circumstances even when providing Limited Advice. The Code Committee is trying to build some common sense around that, and we have done a lot of work to support a much clearer pathway for advisers.
We want to achieve an outcome that is more feasible for advisers, so that they don’t have to do unnecessary work when only dealing with a part of their clients circumstances. The Code Committee work here will have huge benefits not only for advisers, but also for their clients.
There have been many workshops, one-on-one meetings and association group meetings over the past few months. What has the FAA Review process been like?
We have found MBIE to be very open to practical comments that we have made, and have engaged very seriously in the consultation process. The collaborative approach of all associations has strengthened this; we have worked with all associations, to ensure that there is a good, clear voice for advisers being heard by MBIE.
A final comment: there is still time – maybe not plenty of time – but enough time to submit fresh ideas. If any of these comments prompt people to think about other things that they want considered; we encourage them to get in touch with the CEO of the PAA, Rod Severn.
One of the biggest challenges for the advice industry is the perception consumers have of advice. How has the PAA submission addressed this?
Lack of clarity for consumers has marred the reputation of advisers. Confusion relating to designations – RFA, QFEA and AFA, category one product, category two product, personalised advice and class advice – and the lack of distinction between advice and sales, has had a detrimental impact on the reputation of advisers, and has created barriers to consumers accessing financial advice.
Our view is that the reputation of financial advisers will be improved if these multiple divisions are removed and if advisers are seen at law as one and the same.
We think additional clarity would come from broadening the concept of sales. In our view, the perception of advice is tainted when what is essentially a sales function is labelled advice. We’ve worked hard to try and limit who this would apply to, but we do think in the case of big institutions, many people are performing a sales function, and should therefore no longer be treated as a financial adviser.
Clearly distinguishing between sales and advice means that we as an association can do more to promote what a fully fledged financial adviser offers consumers.
Removing designations and changes to the Code would have an impact on RFAs. What has the PAA recommended to manage this?
Just to be clear, the PAA has not recommended that all advisers become AFAs under the current structure. We are recommending a revised regime.
It is essential that there is an adequate transition period for RFAs. One of our suggestions has been to use CPD over a period of three to five years from the start of the revised regime. This would mean that those who do not already have advice qualifications, can transition in using their CPD.
We have also made it very clear that while the Code would apply to all advisers, there would need to be flexibility both in terms of competence standards and advice conduct. We don’t want an environment in which everyone is forced to be educated in the same way. This is very much in line with the current direction of the Code.
What is the view of the PAA regarding whether advisers should be regulated as individuals or via the business they work for?
The business approach to regulation is common in other countries, for example Australia. We take a different view, and one that we believe both supports individual professionalism and distinguishes the flexibility of the New Zealand environment from other jurisdictions.
Genuine advice is intimately linked to relationships and the qualities that an individual – not a business – brings to the table. We want consumers to know that they are dealing with a human being, not a faceless organisation; that the qualities of that human being in delivering advice are important.
For these reasons we believe that the primary method of regulating an adviser should be at an individual level, not at a business level. We pride ourselves on having in New Zealand an industry that is focused on individual professionalism. Recognising qualities at an individual level is essential in sustaining and growing that.
How would compliance work in an environment where all advisers were recognised at an individual level?
We think there is a real opportunity to create a participative compliance process, rather than a catch-you-out compliance environment. Our recommendation is that professional associations facilitate a peer-review process for advisers. Instead of everyone being subject to random audits by the FMA, we would like to see a system of periodic peer reviews in which advisers can benefit from a more reflective view of how their business is operating.
From the FMA’s perspective, they would have comfort that someone independent is having a look at how each adviser operates. From the adviser’s perspective, peer-review would be a proactive business development tool, not only a compliance measure, and would provide insight about how their processes line up to the ideal based on practical, advice relevant experience. This would be a core function of professional associations – each performing a key role in facilitating the peer-review process.
The PAA have also been working with the Code Committee – what is a key outcome you are hoping for from this consultation?
An area of particular interest for the Code Committee is what they call Limited Advice - where an adviser is only talking about one aspect of a client’s financial situation, not the whole financial plan for their client.
This area has been a bit controversial and confusing for advisers because the Code and the Law is often read to mean that you have to do full-checking on a client’s financial circumstances even when providing Limited Advice. The Code Committee is trying to build some common sense around that, and we have done a lot of work to support a much clearer pathway for advisers.
We want to achieve an outcome that is more feasible for advisers, so that they don’t have to do unnecessary work when only dealing with a part of their clients circumstances. The Code Committee work here will have huge benefits not only for advisers, but also for their clients.
There have been many workshops, one-on-one meetings and association group meetings over the past few months. What has the FAA Review process been like?
We have found MBIE to be very open to practical comments that we have made, and have engaged very seriously in the consultation process. The collaborative approach of all associations has strengthened this; we have worked with all associations, to ensure that there is a good, clear voice for advisers being heard by MBIE.
A final comment: there is still time – maybe not plenty of time – but enough time to submit fresh ideas. If any of these comments prompt people to think about other things that they want considered; we encourage them to get in touch with the CEO of the PAA, Rod Severn.
