One submitter did not support either option. They submitted that the proposed standards relating to needs analyses should only apply to the provision of financial planning services. It was submitted that option (a) will require suitability analyses to be carried out in all situations, even when analyses are impractical, costly, time consuming or not wanted by clients. Examples of when an analysis may fit into one of those four categories, is when:
(a) a client asks an AFA for simple over-the-counter financial advice in relation to a product the AFA’s employer sells, such as “is it better to pay the premium monthly or annually”; or (b) an AFA performs an investment transaction without client contact.
That submitter stated that option (b) offers no improvement, because it still requires a written warning to be provided that explains why an impractical, costly, time consuming or unwanted suitability analysis was not provided.
That submitter also stated that some AFAs only work in transactional roles and either provide incidental advice during the transactional process, or indeed do not provide financial advice at all. They noted that despite this, standard 11 still proposes that if the client opts out of receiving a suitability analysis, they must receive a written warning. They submitted that in such situations, written warnings may be inconvenient and not treated with respect by the client, which will have the effect of undermining public respect for the Code.
Five submitters stated that they are strongly opposed to the suitability analysis being mandatory. They submitted that both options do not recognise the various types of consumers and do not provide sufficient flexibility to allow consumers to choose the financial services that best meet their investment needs based on their own level of sophistication and financial literacy. They also submitted that the Committee assumes that all consumers are financially illiterate. They stated that the standards should allow for sophisticated clients who simply want an execution only transaction and that it is ultimately the client that makes the decision.
One suggested that the Code Committee had assumed all investors to be financially illiterate, and had not considered the different kinds of investors (in particular sophisticated investors who only require the adviser to execute their decisions). They stated that a failure to be flexible and accommodate different types of clients will create unnecessary compliance costs.
One submitter disagreed with the concept of the suitability analysis and thinks that it would be unworkable and would create unnecessary burdens on NZX Advisors.
One submitter stated that they are strongly opposed to any mandatory suitability analysis for all members of the investing public. They stated that the options proposed do not recognise the various types of investors and provides insufficient flexibility for them to choose the financial services that best meet their investment needs based on their own level of sophistication and financial literacy. They stated that this suggests that the Code Committee thinks investors are not capable of making good decisions. She submitted that the focus should be on better education and secondary schools should include financial courses covering budgeting, investment and borrowing. She submitted that it is critical that investors should be encouraged to increase their own knowledge base with reputable advisers to assist them.
One submitter stated that she does not agree with either option as there is a range of clients and all have varying understanding of financial products. It was submitted that some are very experienced and would just require broking services but others might have a specific query regarding a particular investment. It was also submitted that a full analysis would be inappropriate in either instance. One submitter stated that AFAs should not be required to carry out a suitability analysis when providing financial advice. It was submitted that this does not reflect commercial reality. They stated that:
• the principle of suitability should only apply to a financial planning service; • option (b) would add unnecessary compliance to the system;
• many customers wish to call up and purchase category 1 products and in that situation it would be impractical for that customer to receive a full financial plan matching the product to the client. It was submitted that the Code must allow AFAs to give advice on a product without providing a financial planning service;
• standards 11 and 12 should only apply to financial planning services for “retail” customers; and
• that clients should be able to consent in writing to not receive a suitability analysis.
One submitter stated that they are strongly opposed to any mandatory requirement for a suitability analysis. They stated that neither option is appropriate as the options do not recognise the various types of consumer and that the options provide insufficient flexibility to allow them to choose the financial services they need based on their own level of sophistication. That submitter stated that the standards fail to allow for those who simply want an execution only service.
One submitter stated that both options are inappropriate as different types of financial adviser services require different levels of suitability advice.
One submitter stated that this requirement is overly intrusive, and that the nature of the service sought by some clients will make a suitability analysis inappropriate or unnecessary. The submitter stated that the client and the AFA should be free to agree whether a suitability analysis will be provided as part of their terms of engagement.
One submitter did not endorse either option, because they stated that the options fail to take account of the range of clients and differing needs. The submitter suggested that consumers should not be forced to wait for a suitability analysis to be conducted before finding out whether the adviser can provide the service they have requested, and that often consumers will be in a better position to determine the suitability of a given course of action than the adviser.
One submitter also suggested that the cost of the suitability analysis could deter investors from seeking financial advice at all.
One submitter rejected the prescriptive nature of the rules on suitability (and independence), and suggested that it should be left up to the client and the adviser to decide.
One submitter rejected both options, and resented the suggestion that a suitability analysis should necessarily be foisted on educated sophisticated investors.
One submitter suggested that the parties should determine whether a suitability analysis is needed, and customers are free to leave if they do not think they are receiving, or will receive, a satisfactory service.
One submitter suggested that from experience in both financial planning and NZX investment, a suitability analysis should not be required in all cases. The submitter suggested that the proposed standard fails to take account of the different kinds of consumer and the different services that they may require. The submitter also stated that the Committee had made the “gross assumption” that all members of the public are financially illiterate, failing to take account of those sophisticated investors who seek advice while retaining some control.
One submitter suggested that given the impact this will have on consumer access to services, it should be considered by the Government and not the Committee.