In a couple of recent articles, I tore a few things down. In one article, I shared my scepticism regarding how many financial coaches can actually provide their services without being regulated by the Financial Markets Conduct Act (FMCA).
In another, I talked about finfluencers and educators who make money by sharing opinions about financial products, and how this also seems to be captured by the FMCA.
In each case, I think these services should be regulated – if you’re going to make money from these services, consumer protection rules should apply to you.
Whether this translates to regulator action is another question, but I digress.
In this post I’m going to suggest something a bit more positive. I thought I’d share something that someone might like to run with. If this applies to you, then feel free to touch base and I’m happy to discuss how I could be involved.
By going through the FMCA in a bit of detail, my attention came to Clause 5 of Schedule 5 of the Act.
This clause states that financial advice is NOT regulated financial advice if:
- the advice is provided by an organisation that doesn’t operate to profit or gain an owner or member;
- that organisation isn’t a financial product provider (or related to one); and
- there is no charge for the advice.
It seems to me that if you created a not-for-profit organisation for providing financial advice, and you didn’t charge for this advice, then you’re not caught by most of the regulatory regime.
An aside: exclusions are interesting
Exclusions in statutes are always interesting, because they give an insight into what is intended to be caught or not caught. When I wrote about finfluencers and educators, for instance, it was very revealing that the Act includes a specific carve-out for “teachers” and “lecturers” who meet a narrow definition set out in the Education Act 1989, as opposed to people who refer to themselves as “teachers” in general.
Similarly, there is a very interesting exclusion to this exclusion – a non-profit advice organisation can’t be related to a financial product provider, even if it meets the other criteria of not providing the advice to profit or gain from doing so. To me, this indicates there was a concern that product providers might fly very close to the line in terms of making profit or gain, so there was a decision to avoid this risk rather than manage it.
More colloquially, our legislators double bagged against the possibility of financial providers providing “free” advice that conveniently results in distribution of their products.
(In fact, this makes me wonder how financial product providers can get away with some of the education they provide, even if it’s not for immediate gain. I’ll just leave that there – it’s not something I’ll explore in the immediate future.)
This would NOT be a budgeting service.
I am not talking about a budgeting service. It would relate to investments and risk management. In one sense, it wouldn’t focus on people most in financial need. But it would cover a number of Kiwis who have traditionally been underserviced by the advice market.
Determining who would be eligible for this type of service would need to be considered in quite a bit of detail. I envision something like a “grant” or application process, where the people who make the most compelling applications would be granted the services.
No profit? No chance!
Of course, I’m not suggesting that this would or should substitute for professional financial advice. That’s not good for consumers. Nor is it feasible – you simply wouldn’t find enough volunteers.
But I think there are a lot of people who would be interested in assisting an organisation like this. There are a lot of people with good intentions and a lot of financial knowledge out there, and I think a good number of these people would be interested in helping out other Kiwis in the right context.
For example:
- Some of these people might want to get involved because teaching is a good way of testing and deepening what you know, and reinforcing this knowledge.
- Some people might be interested in entering into the industry and would like some real-world experience to determine whether this is a route they actually want to go down, and to hone their experience as they work on the relevant steps to eventually enter the industry.
- Some people simply want to give back to others, and this could be a rewarding way of doing so.
The road to hell can be paved with good intentions
I would hate to see an organisation like this be created and let people with the wrong intentions, or who know enough to be dangerous, run amok and provide terrible advice.
If someone took this idea, I’d want them to do so responsibly. It would be necessary to have some structure for reviewing some or all of the advice that is provided. Even if many of the FMCA requirements don’t apply, it would be necessary to specify certain levels of competence and conduct – and for these to be enforced. The people providing advice would need to be supported properly.
I see many ways in which advice could be provided via an organisation like this. It could be general presentations. There could be cohort-based group sessions (similar to the Stealth Wealth course I’ve run in the past). There could be one-on-one, limited-advice services similar to my INSIGHT service.
Is this similar to something provided by, say, Sorted (on behalf of Te Ara Ahunga Ora Retirement Commission)? Yes. But I am envision something that would be a very different creature, providing a different set of services. It wouldn’t need to be seen as being as neutral about financial institutions and products, and would be more inclined to answering more specific, direct, and personal questions.
Some exceptionally important caveats!
I’m NOT a lawyer. I’ve forgotten more than I remember about being a financial services lawyer, and I know enough to be dangerous. If I were serious about this I would run it by a lawyer with expertise in this area.
Nor have I spent a lot of time exploring whether and to what extent there are any provisions that relate to “financial advice” in the FMCA, even it doesn’t meet the threshold of being regulated financial advice.
These are preliminary thoughts only, and I’m simply sharing them in the spirit that an unplanted seed never grows.
I can’t run this, but I’d love to be involved.
If this is something you’d be interested in setting up, or possibly even funding, then please touch base. I’m not in a phase of life where I can dedicate the time and energy I’d like to an endeavour like this, but I’d like to be involved. If done right I am confident it would be an opportunity to create an amazing legacy. If you touch base, I might also be able to put you in touch with some like-minded Kiwis.