In New Zealand, trust and confidence in financial professionals has diminished but the need for professional advice is growing, despite the complexity and additional cost of giving and providing financial advice.
In New Zealand, trust and confidence in financial professionals has diminished within the past few years but the need for professional advice is growing, despite the complexity and additional cost of giving and providing financial advice in New Zealand over time.
The Financial Advisers Act 2008 (FAA) was intended to promote higher standards of care for professionals delivering financial advice. Moreover, a primary goal of the Act was to foster confidence and promote professionalism within the financial advice field. This legislation has been in a review phase over the past few years.
Less than 10 per cent of New Zealanders seek a financial adviser for professional advice. Financial advice is primarily around insurance needs and investment planning, and consumers turning to family and friends before considering or going to a financial professional, is consistent with adviser use outside of New Zealand.
At present, there are primarily three types of advisers in New Zealand: Qualifying Financial Entities (QFEs), Registered Financial Advisers (RFAs) and Authorised Financial Advisers (AFAs). The type of adviser depends on:
- Type of client – retail or wholesale;
- The nature of the advice – if advice is personalised or general; and
- Types of products involved – investment related or not.
As part of the study discussed in the article, a survey was developed for consumers of financial advice in New Zealand. Clients of financial advisers were asked about their choice of financial adviser, their experience of financial advice, their view of the 2008 FAA, in addition to a set of demographic questions.
Survey results revealed that clients of AFAs with a CERTIFIED FINANCIAL PLANNER® designation (the only group of advisers who currently have to meet minimum education and professional development requirements) are wealthier, older and possess more education.
RFAs are not bound by any education standards. Clients of RFAs are also older, fall within the lower income bracket (below NZ$50,000) and are less educated.
Education and age has been demonstrated to influence the perceived value of using a financial intermediary.
The majority of respondents who seek advice from an RFA cite retirement planning and investment services as the primary areas for receiving advice on. This is troubling, as RFAs are limited in the advice they can give, pertaining to financial products and services.
It was also interesting to note that clients did not see a change in their client-adviser relationship as a result of the review of the FAA.
If financial advisers are not upfront or fail to clearly communicate the scope of services to clients, which includes the products they are qualified to provide advice on, this issue will continue to hinder the growth of professional financial advice in New Zealand.
Promoting higher and more uniform financial adviser education standards is necessary for professional growth and better public perception.
Moving towards a uniform and higher set of education standards for all advisers may lessen public confusion, such as requiring a degree qualification within a certain timeframe like in Australia.
As new and younger entrants come into the adviser space worldwide, this seems like a positive next step in New Zealand.
This article is published in the current issue of the Financial Planning Research Journal (FPRJ) – Volume 3, Issue 2, 2017. To read the report in full, go to: www.griffith.edu.au/business-government/griffith-business-school/departments/department-accounting-finance-economics/research/financial-planning-research-journal/current-edition
Dr Janine Scott is a Senior Lecturer, School of Economics and Finance, Massey University, Palmerston North, New Zealand. She is also a CERTIFIED FINANCIAL PLANNER® professional.
