An interesting discussion yesterday about whether a service standard should be included in the new draft Financial Advice Code. There is a widespread belief that providing ongoing advice service should be part of the Code, and some attempt should be made to define the service, and place it in the Code.
Defining the service is a tough ask. I am not in favour of the Code requiring certain types of service, charge, or economic activity. That was rejected by MBIE in drafting the law and if you like innovation, flexibility, and freedom, then you probably think that was a good idea. I am also concerned as to how we would define the service, at what thresh-hold level of renewal commission we might require it, and whether we might bind an adviser to a situation where they were required by the Code to provide a service that was uneconomic, in the case of very small renewal commissions.
But the problem is real, as illustrated from Australia, is when a financial adviser receives a payment for no service given. Plainly, this is wrong. I recently had my neighborhood gym charging me for personal training, with a trainer that had left the business. Unnoticed for some months, I was not happy when I found out. Consumers are like that. In Australia, such advice fees were charged in some cases, even on the accounts of people who had been dead some time. It is not a good look.
But there is a solution, possible with relatively little complication to the admirably principles-based design of the Code.
In Code Standard One, in the commentary, we could add an illustration that it is never fair to receive a fee or commission when no service is provided and no reasonable attempt has been made to provide the service. That would leave the exact nature of the service, the value proposition, the form of charge and so on, with advisers. It would also clearly signal that fee for no service is unacceptable.