David Naulls

“Pedlars, touts and hawkers” is how the then Executive Director of the Securities Commission described some people in the investment industry in our 1988 article on investment advice.

Our article was sub-titled “investment advice can be hard to find” and not much has changed in 20 years. Our mystery shop a couple of months ago of 33 financial advisers revealed an industry that seemingly has no interest in doing better. The standard of advice and analysis we discovered was scandalously poor. The full account can be found in our Financial advisers report.

What is staggering is that within the next year new rules and regulations will be imposed on financial advisers. You would have thought the industry would be preparing for this rather than making hay while they can.

Will the new regulatory regime clean up the industry? We have our doubts. Most of what is proposed is further rules and regulations that will be only as good as the enthusiasm with which they’re designed and enforced. Rules and regulations encourage box ticking rather than meaningful disclosure and putting the client’s interests first.

We would like to see a more principles-based approach (“standard of care”) where the adviser is meant to put their client’s needs and interests before their own. Advisers should then be randomly audited to see whether their advice was truly disinterested and appropriate to the needs of their client. Out of the 17 advisers we got plans from, few would pass this type of principles-based test.

There should also be an end to advisers being paid on commission by the providers of investment products and services because it creates such an obvious conflict of interest. The Australian Securities & Investment Commission has suggested doing this across the Tasman. If commission-based payment is to continue here, then financial advisers should be tightly regulated like the real estate and second-hand motor vehicle industries.

What’s also essential is standardised disclosure in a simple two-page document of how independent an adviser is, how they’re paid, what the total cost of their advice is, and their financial qualifications.

We found some good advisers out there – we just wish the rest of the industry met their standards.

David Naulls
Editor
Consumer magazine

More from consumer.org.nz

• Financial advisers - the full report of our mystery shop

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