Hands up who knows the difference between a registered financial adviser and an authorised financial adviser? And what on earth is a QFE?
The answers matter. A registered financial adviser is someone who fills in some forms, pays some money and can hang out his or her shingle and start selling insurance, mortgages and other "category 2" financial products. Registering as a financial adviser is as easy as registering a dog or a motor vehicle.
An authorised financial adviser, on the other hand, has to pass exams, follow a code of professional conduct, which can be found at financialadvisercode.govt.nz, and must be transparent in his or her dealings with an investor. Only these advisers should be providing financial plans and giving advice on investments and KiwiSaver.
At best, says Massey University's Dr Claire Matthews, the public may know that "financial advisers" have to meet some rules. "Do they fully understand the difference?" she asks. "Probably not."
This column was going to be a straightforward guide to the people that can give financial "advice" but don't fall under the Financial Advisers Act. More about them later.
Sadly, it turns out that it's not just the ones that got away from regulation that can be a problem. Despite new laws, the public still needs to be a little wary of the words "financial adviser", and not be lulled into a false sense of security.
Registered financial advisers are supposed to put the client's interests first, says Robert Oddy, chairman of Sifa, which represents small independently owned and operated financial planning companies.
Yet one interviewee for this article said: "Ninety per cent of RFAs are just flogging product." That's probably a tad harsh. At the kinder end of the scale, another said 30 per cent, which is still too many, were just interested in the sale, not the client's best interests.
In fairness to the good registered financial advisers, there are some that just do it right, says Russell Hutchinson, director of Chatswood Consulting.
There are others, however, who get nowhere near that standard of advice. What's more, there are still companies out there offering "financial plans" that aren't authorised to do so.
That brings me to the ones that got away. There are lots of consultants/advisers/salespeople/educators out there offering what you and I would call "investment advice" in the sale of their products who don't need to be either registered or authorised financial advisers.
You find them peddling investment property, precious metals, foreign exchange dealing, options and CFD trading platforms.
Yet these services may not be classified as "financial products" under the Financial Advisers Act. In layman's language these are all "investments" that have the power to financially ruin anyone who "invests" in them.
I don't want to single out any of these companies in particular. But looking at the disclosure document on one of their websites this week it was clear that it's buyer beware when it comes to using their service.
The fine print said: "Information we provide is general information only ... Such information is provided merely to assist you in exercising your own judgment when trading with us and we are not responsible for the investment decisions that you make."
There is a fine line in many cases, says Massey's Matthews, between promoting a product and giving advice saying what you should do.
My comment on that is that when there is a fine line, there will always be individuals and organisations that push the boundaries.
Many companies that fall outside the regulations provide education workshops, which are nothing more than sales pitches. Another class of unregulated people giving financial "advice" are seminar presenters, who can often be very persuasive.
Property consultants that sell "real estate investment strategies" don't need to be registered. That is even though they are giving advice of a financial nature, says Jeff Matthews, senior adviser at Spicers Wealth Management.
One of these hard-sell Blue Chip-style property companies cold-called me earlier this month. Another says on its website: "We can show you how to build up a property investment portfolio that will provide a passive return of $150,000-plus each year." But that isn't considered to be investment advice under the Financial Advisers Act.
Some of these companies' "property consultants" are in fact registered financial advisers. But they only give advice about property investment, not shares, or how to build a balanced investment portfolio.
"You're not getting anything approaching 'advice' if you go and see someone who is going to sell you one thing only," warns Hutchinson.
The Financial Markets Authority (FMA), which oversees advisers, does have these property companies in its sights and spelled out on its website recently what they can and can't do if they want to stay within the law. Some of the marketing material I looked at from these companies this week could arguably step over the line.
Real estate agents have the ability to cause huge financial harm and sale and purchase agreements are some of the most "spectacularly dangerous" documents known to man, says Hutchinson. Nonetheless they are not covered by the Financial Advisers Act. The 2-year-old Real Estate Agents Authority is, however, doing a relatively good job of keeping agents in line.
The moral is that even with the extra protection of the Financial Advisers Act and the relatively recent ability to access dispute resolution services, if things go wrong, the public must ask questions. Before committing to using a financial adviser's services, ask for examples of the adviser's previous financial plans. Get independent advice if your registered "financial adviser" is only offering one product, such as property.
Investors should also ask what professional indemnity insurance the adviser holds, says Susan Taylor, of Financial Services Complaints (FSCL), which is an independent complaints service. It's well and good to take an adviser to a dispute resolution service. If, however, he or she has neither money nor insurance, any decision in the client's favour may be worthless.
It's worth noting that some investors will choose to take their advice from what's called QFEs. These are people who work for large banks and other organisations. The organisation is registered as a Qualifying Financial Entity and the individual staff members work under its banner without the need to be registered or authorised.
The disadvantage is that a QFE's staff members might not be as well trained as authorised financial advisers.
Members of the public like the security of thinking that these banks and other large organisations will pay up if something goes awry with advice from their staff members.
One little-known issue for investors is that they may be classed as "wholesale investors" if they own a portfolio worth more than $1 million. That could include the home in a family trust or the sale of a business.
Trevor Salter, general manager of FSCL, says advisers providing services to wholesale clients must be registered on the Financial Service Providers Register (FSPR) but may be exempt from being a member of a dispute resolution scheme such as his.
A "wholesale client" who wants to complain about his or her adviser must use the courts, which can be costly.
FSCL has a number of financial service providers who have joined voluntarily so that they can offer external dispute resolution to their wholesale clients.
To date the three dispute resolution services have had very few complaints. In part that is because thousands of financial advisers quit the industry when the Financial Advisers Act came in.
What's more, the new system isn't well understood by the public, who may not realise that there are independent complaints bodies.
There is a disconnect between how registered financial advisers operate and the expectations placed on them by the law and the FMA's interpretation of that law.
The FMA published its expectations of the care, diligence and skill that registered financial advisers are expected to provide.
As the public becomes more aware of those expectations it will be likely that there will be more complaints laid.
In the meantime the FMA is also doing some work to stop registered financial advisers trying to offer services they're not entitled to.
It recently found examples of registered financial advisers offering "comprehensive personal financial plans" and "full financial health checks" in their marketing material, which is not permitted under the Act.