There has been some energetic debate about the differences between Fiduciary Duties, Putting the Interests of the Client First, and Best Interests of the Client. This debate matters and is important for the future of financial advice in New Zealand.
The debate is investment focused and I would like to see more insurance advisers participate. If you are a current insurance adviser under the Registered (RFA) category, then you should get stuck in to this as it is likely to be the standard you will be expected to follow. It may become enshrined in law.
The way I see the debate is a fundamental one. If someone comes to you for advice, then you need to give them good advice. If you are described as an ‘adviser’ then acting on behalf of the client is central to delivering that. Otherwise the client could be misled. An adviser could say “I think…” and recommend what’s best for them, not what’s best for the client. It seems that most of the people commenting on the recent goodreturns articles agree on this point.
I don’t so much mind what this is called so long as we all know how it works. A principle stated clearly followed by examples is a good way to approach this. I had lunch with Murray Weatherston recently and he has already researched some excellent examples. It doesn’t seem too hard. Rob Dowler and I were able to work through some straightforward examples over coffee recently.
We get to trickier territory when we see comments that confuse other matters with the range of products available, the scope of advice being offered, and matters of policy – like whether it should be legal to sell a financial product without advice. I get a suspicion that a genuine love of the advice concept is blinding some people to the fact that some consumers like to just buy things without getting help, or would prefer a limited advice process, or actually prefer paying a commission to paying an up-front fee.
Take available range and competence as an example.
Plainly you can be an effective fiduciary with a range of zero products – pure advice, fee paid. No room for conflicts of interest here. You might be able to be an effective fiduciary if you could offer an unlimited range of products – although it might be hard to prove your competence to advise on all of them. But very, very few advisers offer either of these propositions.
Most advisers typically offer the limited range of products of one company, if they work for a big bank, for example. If they work for themselves, or a third-party advice business, they may offer a wider range of products (often much wider, but far from universal) from a platform and / or several product providers.
Because of this, if you care in any way about the availability of advice, then advisers should be able to limit their service based on preference and capability provided this is clearly disclosed to the client. A disclosure statement that provides clarity on that preference and capability might state something like, “The range of product on which I can give advice is limited to…” or “I only advise on matters such as…” Rob Dowler suggests that it would also be helpful if disclosure went on to outline the risks that arise from the limitations of the product or service range being offered. Such disclosure simply recognises the fact that preference and capability must be limited for nearly all engagements. If you cannot follow such a process then you are left with only one choice: withdrawing from offering any service. A poor, blunt, instrument that would leave many customers with no access to advice.
The equivalent scope limitation must exist for customers. Customers should be able to limit the scope of the engagement based on either their preference or capability as well. “I just want you to advise on KiwiSaver fund selection” and “I don’t want to look at any …” and “I would prefer not to invest in companies that…” are all valid scope limits. Even budget limits are fine. A good financial adviser should probably point out “well you’re just not saving enough” but the client is still the boss and can decline to save more.