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PAA Workshops Compliance Business Planning

Last week I periodically blogged - albeit almost wordlessly - from the PAA workshops. Having just put together the project plan for authorisation for the PAA I now have the results of all the workshops assembled together. With those thoughts organised I thought I would share with you some observations:

1. There is no single plan available. There's lists of stuff from ETITO, another list from the Securities Commission, various bits from training providers, but what the PAA advisers found really helpful was doing a plan on the whiteboard from their point of view. Well, there is a plan available now! Watch the PAA for it's release.

2. There was a real thirst for looking at the business issues - all the compliance jargon is meaningless unless its brought back to business decisions: so we spent some time in most workshops looking at how each adviser will have to define in their ABS the areas in which they will give advice, and how they might choose those areas based on some analysis of their current business and skills.

3. The corporate structuring issue was brought out in only a couple of workshops, but it's a vital part of the plan. Now there is a real additional cost to complicated corporate structures (one adviser I met has a company for life insurance advice, a company for non-life insurance advice, and a company for investment business) that's a structure that's being re-assessed in the light of the need to register each business as a Financial Service Provider.

4. There are three distinct kinds of advisers:

a) Overwhelmingly, those committed to AFA. They don't have any hang-ups about the whole thing, or have got over them.

b) A small minority following a different path - either RFA or QFE - because they have businesses that best fit this model. 

c) Another small group that is grumpy as all hell, and although they know that the right route is AFA they are unhappy and delight in having the opportunity to express that unhappiness. This group is hard to help.

5. Time versus Money was always an issue. I just let it come out in every workshop: someone would complain about the $28 for the ETITO self-evaluation tool and then I would pounce on it with delight. This is the real business planning issue.

We then worked out the hourly rate for advisers - lets say with revenue of $150,000 the hourly rate is bout $75 an hour. But then we'd look at the rate for the hours that are revenue generating - people would shout out about 10 to 20 - so looking at about 15 hours a week we get up to about $210 an hour - quite reasonable. Then we'd work through the plan and look at the hours of work required to comply.

Now we are back at the office the estimate is between about 90 hours to something a little over 600 for someone basically starting from scratch. Now this is the cost - not the $28 for the ETITO tool - it's the time.

But we did not just leave them with the problem - we then talked about prioritisation. Put the revenue generating hours into your plan first, then put in the compliance project hours, and manage the rest.  If you don't want to earn less - and most of us don't - we came up with a variety of ways to manage - essentially the core three are:

a) Work longer hours

b) Delegate (and hire so you can, if you haven't got staff already)

c) Stop wasting time / doing what's less important (look for tasks you don't enjoy

Securities Commission Releases Guidance on Financial Planning

For those that have been following the issue of the definition of financial planning in relation to giving advice on category 2 products then this will be an important chapter in that drama - but it is far from being the final one. The Securities Commission has released it's guidance on the definition of financial planning. You can find it here. Link.


The Securities Commission are following a high quality standard: they start by looking at what it is to consider the nature of the client's situation. They conclude that this is either (in a minority of cases) 'evident' or in a vast majority of cases requires a great deal of inquiry.

This will please a lot of financial advisers. It should also please consumer advocates (provided they believe enough general advice can be given).


This definition will increase costs for all types of financial advice and reduce availability of the general kind of advice available to many clients through straightforward sales channels - such as bank customer services staff, mortgage brokers, and so forth. It will do so by requiring higher standards and more education. That will reduce the number participating in the marketplace and increase their costs.

Possibly the most interesting comment in the guidance note is this one:

"What is unacceptable is deliberately limiting the areas of inquiry required to meet the standard of care diligence and skill Section 33 demands in order to avoid crossing the boundary into providing a financial planning service."

That's the warning shot that is fired across the bows of anyone who thinks the business as usual choice is to become a Registered Financial Adviser. It's one I would take to heart if I were running a high-advice business insurance model in the fire and general sector, a bancassurance channel, or a life risks business using a needs analysis model such as X-plan.

Please remember, the Securities Commission is not inventing a new offence here - they are saying that the law requires you - in order to meet the care, diligence and skill standard - to make sufficient inquiries to establish the nature of the client's requirements (even as an RFA) and if that would naturally take you into the territory of financial planning, but you choose not to go there, then you are still failing in that requirement if you then proceed to make a sale or charge for your advice.

What's missing

The two examples given - car insurance and home equity release are safe ones for the commission. They define extremes, not the boundary. What would be really useful for companies, advisers, and clients, is a definition of the boundary. However, we can forgive the Securities Commission for not making this clear. It is not their job. It's a job that should have been done by the legislators and their advisers.


This is a completely different approach to financial advice from what most individual practices in New Zealand. It's an approach that I feel instinctively has a very important place in the future - and it's the kind of thing that the clever folks at Inform Holdings are working on. Check it out. While you do that, here's a thought - does it comply with the outlines of the Code that we've seen in the discussion papers?

In Series, not Parallel

This is a quote goodreturns attributes to a spokesperson for Simon Power:

But he says the Government is determined to have its part in order by the end of July and businesses need to do the same with the aim of making the December deadline.

This sounds good - to an uninformed observer this makes it look like the industry and government are in partnership and each has a set of tasks to do that can be accomplished alongside each other. It even has a faint undertone of reproach as if business has been dragging it's feet. However, this is simply not the case. If the minister believes this to be the case, perhaps he has been misinformed.

The problem is that the necessary tasks must be completed in series - not parallel. For example: while there are some education standards that an adviser can start on there are many that they cannot commence until the Code of Practice for authorised financial advisers is completed, the registrations are opened up, the disputes schemes set up - they are waiting for government to do it's bit. By the time government has finished these tasks it will have taken much longer to do it's bit than it will allow industry for their part.

Industry is by and large happy with the new standards (bar a few wrinkles, some technical, and some less so). Also industry is generally pushing for advisers to adopt standards higher than the minimum set. That's pushing more advisers towards Authorised status. This is all good. Allowing up to six months longer for some of the competence standards to be met, and a little more time to implement QFEs (since they haven't even finished writing the rules) could make all the difference between a botched implementation and a successful one.