Former Australian financial services lawyer and now New Zealand AFA Sonnie Bailey made a submission to the code working group in response to its recent proposals, which included a degree requirement for people offering financial planning services.
Bailey said, while in Australia, he worked extensively with financial advice businesses, including reviewing thousands of their client files.
He said increasing educational requirements, as the working group has indicated it wanted to do, would be an easy way to show that something had been done but was unlikely to make any real difference.
"I understand that many of the members of the code working group have not directly provided financial advice. So I want to be emphatic and make something clear that is based on my direct, personal experience. Providing high quality financial planning advice is not that hard."
Higher education standards would increase the barriers to entry in the industry and push people to offer product advice rather than the full financial planning services that New Zealanders really needed, he said.
“It is directly contrary to the legislative purposes of ensuring the availability of advice and avoiding unnecessary compliance costs.”
He said the biggest barrier to providing high quality advice was not education but escaping commercial pressures.
“These include being aligned with financial product issuers and remuneration structures incentivising behaviours that may not be in clients’ best interests.
“The problems associated with the financial advice industry at this level are largely unrelated to educational standards. The problems are to do with incentive structures and commercial arrangements which have traditionally seen a greater focus on sales than providing quality advice.”
“The fresh blood that comes in will be more likely to enter the industry through larger institutions, where they will be inculcated with the institutional and systemic If I were cynical I would read this distinction between ‘product advice’ and ‘financial planning’ services – and the associated higher levels of educational requirements/barriers to entry for the latter – as a way of continuing to allow sales-based product advice (which tends to be better for vertically-aligned business models and financial product issuers) to be easier to provide than holistic, client-focused, strategic advice.
“If I were really cynical (which I’m not, although others could be less charitable), I would point to this distinction as an insidious example of regulatory capture where vertically-aligned business models are favoured over independent advice models.”
