Alphabet Soup is Unhealthy
Compliance & Sales & Marketing for Professional Services & Strategic Issues

Alphabet Soup is Unhealthy

December 15, 2011

 by Tony Vidler.

One of the intriguing little debates happening in NZ financial services in recent times has been the use of new (different) acronyms for different types of advisers. Observing the often heated debate got me thinking: who cares?

The answer actually surprised me:  I do.  I care.  

The incessant bickering, the unnecessary market noise it creates, the head-shaking that I am sure these types of arguments provoke in the non-adviser parts of the industry, the distraction and amount of wasted energy and resource that gets pushed into little guerrilla wars…I care because all of these things limit our chances of success, and are a barrier to creating a better piece of New Zealand.

We have plenty to use in the way of acronyms now.  AFA, FSP, RFA, CFP, CLU, IFA, PAA, LBA, NZMBA, NCFS, QFE, NZQA….the list could go on and on….and a vast combination of them can be thrown at the market by the financial services sector simultaneously.  It is an alphabet soup that is decidedly unhealthy. 

It is confusing consumers (well only those that are even interested enough to try and make any sense of it all), and it is clearly confusing advisers.  Like it or not, the more we confuse consumers then the less likely they are to trust and use us.  It creates an unnecessary barrier to achieving confidence.  There are a couple of things that we can do as an industry though to try and take down some of those barriers.

The first is the domain of the regulators mostly – but as advisers we have to take some responsibility too.  That is around the use of the licensing terms. As it stands under the newly regulated NZ environment we have broadly two types of advisers (in the most general terms), one being an Authorised Financial Adviser (referred to by all and sundry as an AFA), and the other is a registered, but not authorised, financial services provider.  That second main type of adviser is a bit of a mouthful to describe isn’t it?

The authorities have decreed that anyone wishing to provide advice on complex and potentially dangerous financial products such as most investments, must be an AFA in order to do so. That person is individually authorised, and unable to hide behind the protection of a limited liability trading entity – so they carry full personal responsibility they cannot contract out of for any advice they give. There is a fairly basic education and fit & proper person assessment prior to being authorised, which is a decent starting point for an industry evolving and raising its standards. To keep it in perspective though the entrance education for this is about trade certificate level. Challenging perhaps, and definitely providing technical learning, which is good. The advisers going through that process are undoubtedly more competent for having done so. At the end of it they have a licence to operate in business as a financial adviser, dealing with securities and more complex products.

Where do the non-AFA advisers fit in? Heck, what do we even call them? The industry has settled on calling them “RFA’s”, which is logical I guess.  After all, they are registered and they are financial advisers.  Ergo:  Registered Financial Adviser!  To date nobody seems to have really cared about that label (including me), and there has certainly been no attempt I am aware of for any party to try and correct advisers to use something else that is legally correct, like Registered Financial Services Provider perhaps.

As an aside, and just so there is no concept that I have any issue with RFA’s as opposed to AFA’s (I most certainly don’t), I observe that I have witnessed more confusion being created in AFA land – but of a different sort.  Disclosure statements and marketing material from newly minted AFA’s referring to the authorisation as an educational qualification – which it isn’t. To obtain it you have to do some education, but the licensing status is not an educational qualification in itself.  Some refer to it as an “award” – which it most definitely isn’t. It is a legal consent to go about your business.  I have even see one adviser refer to their licensing status in their marketing material as one of their “Industry Honours”.  THAT is mighty close to being misleading, and is heading for trouble with some authorities somewhere down the track. 


Undoubtedly there are AFA’s seeking to use their authorisation in marketing their expertise and standing, and rightly so. They have engaged in additional education and taken higher standard of care obligations willingly, and are able to provide advice in a wider (and arguably more difficult) range of areas.  It is absolutely appropriate that they advertise this if they feel it will provide an edge to confused consumers, or accurately describe the areas of advice they are permitted to provide.

We need to get it clear though in the consumers mind, and be consistent in our own use of the terms.  The long anticipated consumer awareness campaign around the new regulations needs to be educational – and accurately describe both main types of adviser, not just focus on one particular sort. 

The other main area that is entirely within the hands of the advice side of the industry is the proliferation of industry associations and their accompanying acronyms.  I confess that I have a few letters myself – and have used them in a cavalier fashion (guilty!) – but I’ll throw them all away and stop using them if we can get everybody else to throw away their letters too.  Beyond personal qualifications, designation and licensing terms there is further confusion over “professional bodies”.  I have long contended that there is a place for all of the current industry organizations in the market – though not necessarily all aiming at, or dealing with, consumers.  For instance, there are some groups and organizations where the target market (their consumer) is clearly only the financial adviser and they exist to provide benefits to the adviser business.  An absolutely commendable objective, and one which has commercial benefit it would seem, so you’d conclude there is a legitimate reason for being and a bright future on that basis.

If there was a single area though where there is absolutely no room for competition or confusion it is in the area of “professional standards”.  Standards are either professional or they are not.  They are not a competitive point of difference. That is not to say that standards are static and never evolve, as they most certainly do.  However what is a professional standard in the eyes of the end-users at any given moment in the evolution of a profession should be consistent throughout the entire sector.  In this respect the responsibility sits mainly with advisers.

There are some 2,500 advisers out there in NZ – RFA’s & AFA’s alike – who voluntarily committed to higher standards by joining some type of industry body.  There are perhaps another 5,000 though who belong to nothing and are not perhaps working to the same standards.  It is only “perhaps”, as I am sure there will be a very healthy proportion of those 5,000 who actually do operate the same way as those in the industry organizations, and who do care about being seen as professionals, and do care about their reputations and standing.  The association proliferation is a barrier to those advisers belonging to anyone though.

My hope is that 2012 is the year where a single professional body can begin to evolve for the NZ financial advisers.  Whatever it is called, however it looks, whoever runs it are all fairly unimportant to begin with.  The past differences do not matter, and nor do individual ego’s.  What does matter is that we begin to gain regulatory and consumer confidence by working cooperatively to reduce confusion, committing to common professional standards, and being seen to stand for something positive.  Let’s do away with as much of the alphabet soup as we can.  It is unhealthy stuff.

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