What is a Financial Adviser?

The regulation of financial advice is a good thing.  Before July 2011, anyone could call themselves a financial adviser and promote that service to the public.  Anyone.

A few weeks after landing in NZ, back in 1999 - a financial adviser  (let's call him Jeff) offered me a job.   This was moments after meeting me, by chance, at a family gathering.   I'd like to think that I cast a spell on him with my beguiling charisma, but that wasn't it.     Jeff employed young people to sell life insurance in shopping malls, from a booth.   I would be paid for each "sign up".   He would earn several times what he paid me from the insurance company commission.   A brief chat about savings and insurance revealed that he just wanted to make money.  He was quite open about that.  I gave the opportunity a miss.

Jeff's business model seemed to be very successful, but he is not a financial adviser any more.

There used to be quite a few Jeffs roaming around.    Those characters can no longer call themselves financial advisers.    After a brief period of consternation, they exited stage left to do something else because it became too hard to make money.   They were never going to study for exams, or demonstrate that they knew what they were talking about.   

So now we have actual professional financial advisers.     About 2,000 of them have achieved  qualifications, completed the authorisation and registration process and they are now Authorised Financial Advisers (AFAs).    They also must belong to an official Disputes Resolution Scheme, which gives an independent outlet for a person when things go wrong.   The register of AFAs is here.

At this point, I stress that there are great advisers out there who are not AFAs.    They typically specialise in the more basic insurance and savings products available.    But, like the AFAs, they must clearly explain how they are paid and who by.   They must also tell you the limitations of their service to you; for example - if they can only recommend one provider's products.

So (very broadly) that's the professional financial adviser.    Problem solved then, eh?   

Partly.

We know, don't we, that self-appointed financial advisers walk among us.   They can be just as persuasive as the professionals - sometimes more so because they have no vested interest in the thing they are recommending.    In recent months, I have been strongly advised to :

Invest in a particular fund offered by a particular KiwiSaver provider
Invest in leveraged foreign exchange things (that I don't understand)
Buy gold
Stop being in KiwiSaver
Quadruple my KiwiSaver contributions
Forget about life insurance
Increase my life insurance

None of this advice has come from people that know me particularly well.   They are just offering well-meaning information that they have picked up.   Like the Billy Bleach character on this clip.  When his advice falls flat - he simply says "that's weird.." and moves on.


If you take advice from a professional financial adviser, and it goes wrong - there are avenues to go down that would help sort that out.     With the self-appointed financial adviser - you're on your own.