Morningstar, a global funds research firm, gave New Zealand's Funds Management industry a dreadful D- rating back in 2008. Poor regulatory oversight, high fees, lack of transparency, and systemic conflicts of interest between sales and advice were among the problems it highlighted. In its most recent 2015 update, New Zealand was rewarded a solid C+. A must try harder grade. While fees are now seen as broadly competitive with global costs, Morningstar remains concerned about the lack of transparency in their disclosure, and remaining conflicts of interest between sales and financial advice. Linking bonuses to general sales levels (encouraging churning of, say, insurance products), or incentivising staff to cross-sell a firm's product range (e.g. across KiwiSaver, insurance and mortgage products) is not regarded as good global practice.
Our sub-par rating means that investors in New Zealand are often not given impartial advice on where and how to invest their money, or what their best insurance option is. As a consequence, investment and insurance outcomes are not as good as they could be, and confidence in financial advisers and the industry remains low.
Our sub-par rating is evidently a concern for the Financial Markets Authority (FMA), who is charged with "promoting fair, efficient and transparent financial markets". The FMA, Treasury and MBIE are in the process of reviewing the 2008 Financial Advisers Act, which governs financial advisers. A focus of the review is whether a clearer distinction between sales and financial advice should be made. In relation, the review also considers whether the current classification of advisers into authorised financial advisers (AFAs), registered financial advisers (RFAs) and QFE advisers serve the best interest of the public.
Surveys suggest people do not understand the different types of financial advisers, and their different obligations and abilities. Someone walking into, say, a Ford dealership will know that people on the yard are Ford dealers, and would not expect comprehensive and impartial advice on other car makes. In contrast, someone walking into a bank may not be aware that a bank QFE adviser can only advise on their bank's KiwiSaver scheme or insurance products. Or that only authorised financial advisers can offer comprehensive financial advice across different product providers. And that only AFAs are required to fully disclose how they are paid.
INFINZ, a body that represents a broad spectrum of financial professionals throughout New Zealand, had this to say in its submission to the review: "Use of the term RFA devalues the capability and competency of AFAs who have met, and must continue to meet, competency requirements to be able to use the term.