Banks have mounted an all-out attack on Financial Advisers Act (FAA) reform proposals to clearly distinguish ‘sales’ from ‘advice’ setting themselves at odds with industry bodies and consumers.
Despite considerable nuance in their respective submissions on the FAA ‘Options Paper’ published last week by the Ministry of Business, Innovation and Employment (MBIE), the big four Australian-owned banks and Kiwibank all strongly argue against introducing a formal distinction between ‘salesperson’ and ‘financial adviser’ into the regulatory mix.
By contrast, in their respective Options Paper submissions industry bodies the Institute of Financial Advisers and the Financial Services Council (which includes some bank members) both call for a revised FAA to establish the ‘salesperson’ category. AMP, which has the largest tied advisory force outside of the banks, also backs the sales/advice division in its submission.
An accompanying MBIE survey also found almost 90 per cent of consumers said “clarifying the difference between ‘sales’ and ‘financial advice’ would help them better understand what they are receiving”.
“However, it was noted that any clarification would be difficult as the two concepts are often interlinked,” the online survey of 545 consumers says.
While the sales/advice border looms as one of the most disputed areas in the FAA Options Paper review, the 167 submissions tabled by MBIE last week highlights plenty of potential clash points including: entity licensing; disclosure obligations; removing the current category 1 and 2 product distinctions; dropping the AFA/RFA division; robo-advice; banning commissions and other conflicted remuneration, and; an ‘opt-in’ requirement for wholesale investors.
All the banks, for example, support the status quo where investors that meet the various ‘wholesale’ definitions must opt out to be considered retail clients rather than a proposed opt-in requirement.
While banning commissions – including on life insurance products – does not appear to have garnered much support in the FAA review, a number of submissions do endorse some kind of limits on product-based payments.
AMP, for instance, took a hard line on ‘soft dollar’ payments in its submission arguing “if an adviser is unable to quantify the commission earned such a commission should not be paid”.
“Whilst we support some commission control, e.g. removal of soft commissions and volume aggregation and would support some regulation that would prohibit disproportionate initial commissions we accept that this position may not be widely supported,” the AMP submission says.
Even the Reserve Bank of New Zealand (RBNZ) weighs into the commission debate in its capacity as regulator in the insurance market.
As well as supporting “measures to reduce the degree of churning” in the life insurance market, the RBNZ submission backs “excluding volume-based payments from insurers to advisors”.
The Options Paper marked phase two in MBIE’s review of the 2008 FAA following on from last year’s Issues Paper.
“Ministry officials are considering submissions made on the Options Paper,” MBIE says. “Recommendations will be made to the Minister of Commerce and Consumer Affairs by 1 July 2016.”
James Hartley, MBIE head of financial markets policy, leads the FAA review project.