Submissions call for big law changes

The Financial Advisers Act (FAA) needs to stop thinking about advisers in terms of the products they deal in and start thinking about how they put them to work for their clients, the Institute of Financial Advisers (IFA) says.

Wednesday, July 22nd 2015, 6:00AM

by Susan Edmunds

Submissions on the FAA review issues paper close today.

The IFA's submission says the review needs to address a fundamental problem - that the FAA defines advice based on the product, not how the product is applied to a client's situation.

The IFA said, rather than the current category system and misunderstood adviser designations, a better approach would be to define advice and authorise advisers based on their level of competence to assess the suitability of a product or service for a client's circumstances.

It also wants QFEs removed from the FAA and licensed under the Financial Markets Conduct Act (FMCA). It would then restrict QFE advisers to only offer printed class advice and information.

The IFA says that as it stands at the moment, consumers do not understand when they are receiving class advice. "Verbal communication is too easily interpreted, or trips across into, a position where the consumer feels they have received personalised advice."

The rest of the industry's advisers, currently divided into registered and authorised financial advisers, could then all be held to the same minimum educational standard - a level five certificate - ongoing CPD, and all be bound by the Code of Conduct and disclosure requirements.

This would help distinguish between "sales-driven" and "advice-driven" advisers, the IFA said.

It also called for consolidation of disclosure requirements and better use of the Financial Service Providers Register as a vehicle to display advisers' primary disclosure statements and wants a more effective way for advisers to offer limited personalised advice.

It said discussion about conflicts of interest, and how that could restrict an adviser's ability to determine suitability, should not be limited to commission. "An RFA or QFE adviser on salary is no less conflicted than a commission-only adviser if the culture of their employer is such that they have to deliver sales to retain their position."

The submission says: "It was evident in the recent FMA monitoring report, that the minimum requirements to be an AFA, by both qualification and ongoing training, have resulted in an improvement in the quality of advice in the area they operate. It is important to develop on this across the spectrum of advice."

A second document will be released towards the end of 2015, which will recommend possible changes to the regulatory regime.

Tags: Financial Advisers Act IFA