Confidence in financial advisers yet to turn around

More than half of the people questioned said financial advisers had an important role in helping Kiwis make decisions about their savings, investments and insurance. Photo / Thinkstock

Survey finds big gaps in public’s trust five years after introduction of new law.

Public confidence in the professionalism and integrity of New Zealand's financial advisers remains low four years after a major shake-up of the industry, a survey has found.

In 2010 a new law was introduced to regulate the financial advice industry, forcing advisers to register and meet minimum standards to give advice on complex financial products like KiwiSaver.

The Financial Advisers Act is now under review and a consumer survey undertaken for the Ministry for Business, Innovation and Employment has found there may be plenty of room for improvement.

More than half of the people questioned said financial advisers had an important role in helping Kiwis make decisions about their savings, investments and insurance.

However, just 54 per cent had some confidence in the professionalism and integrity of advisers.

Only 30 per cent said the new law had made any difference to their confidence, with feedback suggesting the new regime was overly complicated and needed to be simplified to make it easier to understand.

The new law split the industry into registered financial advisers, who are only allowed to advise on simple products like bank deposits and insurance, and authorised financial advisers who must have minimum qualifications and meet certain conduct requirements and can provide advice on more complex investment products including KiwiSaver.

But the vast majority of consumers surveyed said the adviser types were difficult to understand or the different requirements for the two categories were inappropriate.

Large businesses like banks were also required to become qualifying financial entities, putting the onus on them to monitor and be responsible for advice given by their employees.

Some consumers felt the new regime favoured the banks and other large financial institutions and said they had struggled to find "truly independent advice".

The biggest problem for consumers was finding the right type of adviser for them - with 84 per cent citing this as a problem.

Commissions were also seen as having an impact on people's level of trust in the industry, with 79 per cent saying it had either a little impact, some impact or a strong impact.

Adviser industry groups have long argued that they have to rely on commissions for income because Kiwis aren't prepared to pay a fee for their services.

But the survey found a large number of respondents would prefer to pay a fee for advice although there was some concern this could stop people with lower funds or first-home buyers from seeking advice.

Most other respondents thought commissions were okay but should be fully disclosed, although only 55 per cent said they would know how to interpret that disclosure.

Fred Dodd, chief executive of the Institute of Financial Advisers, a professional body for the industry, said confidence was not as high as it should be and blamed a lack of advertising by the regulator to let people know about the changes.

"There has been no promotion of financial advice. There has only been one ad - nothing else around 'if you are concerned about retirement go seek out an authorised financial adviser'."

Dodd said his organisation survived off subs and didn't have "tons of money" to promote financial advice to the public.

But he said surveys of people who used financial advisers showed they were better educated, better prepared for retirement and had a different attitude towards risk once they reached retirement age.

Dodd said the names for the different categories of advice were "totally meaningless" for members of the public.

In regard to people finding it hard to find the right type of adviser for them, Dodd said those serious about getting advice were welcome to get in touch with his organisation and would be directed to someone who could help.