It would appear that the regulators in Australia and New Zealand are failing to provide the consumer with much needed clarity on the activities, functions, and rationale for providing guidance on financial matters.

The reluctance to delineate clearly between a sales process and an advice process causes difficulties for a number of stakeholders.

In the context of the financial services industry, selling a product is a totally different function from providing advice.

In the consultation process of the FAA review in New Zealand, a number of submissions called for a demarcation line to be clearly drawn between the two processes.

The same issue has surfaced in Australia and, contrary to orthodox opinion, the attempt to blur the lines has not, and will not, work to the advantage of vertically integrated companies.

The NZ regulator chose to discard any suggestion that differences between selling and advising be enshrined in the review, in the mistaken belief that drawing such a distinction would favour one distribution model over another.

This is a fundamental error that has slipped almost unnoticed through the review process, but which remains as the single most potentially damaging issue for all stakeholders, if not addressed properly.

Let's get this straight, there's nothing inherently wrong, sinful, or negative about the concept of selling. Robert Louis Stevenson rightly stated - "Everyone is selling something". This is true for the neurosurgeon who sells his expertise and experience, to the sportsperson selling their prowess and athleticism, and to the politician who sells his/her future view of an improved world for voters.

In the same vein, the product sale witnesses a transaction taking place, and the financial adviser sells advice - which may or may not include a product solution.

But the procedures are quite different, and they diverge early in the process of providing a solution to the client.

Once a client and the product salesperson agree on a course of action, all that remains is to confirm quantum and to go through the process of implementation.

In the case of the financial adviser, the process goes in a diametrically opposite direction. Instead of reaching for the documents to commence the application process, the financial adviser embarks on investigation, research, and analysis. The adviser and the client are faced with the one clear distinguishing feature that does not form part of the process for the vertically integrated organisation’s process - choice.

This is a huge clue for the consumer that a sale proposition is being presented and that advice is not integral to the process. With an Approved Product List of one product, choice is absent. The only measure of success in sales context is the sale of as many of the organisations own products as possible.

But this is neither negative nor critical - providing the consumer is made aware of the process and can clearly identify that no choice of solution is being offered, that the range of solutions available has not been compared and evaluated, and that there is no capacity to do so, the function of the sale is legitimate, appropriate, and commercially valid.

But to seek to call this process ‘advice’, is a misnomer and the regulators on both sides of the Tasman are doing the industry, the participants, and the consumers they purport to serve no favours whatsoever.

The industry's reputation falls into disrepute when consumers discover that a sale was disguised as 'advice'; the position of vertically integrated organisations is compromised when disputes over client misunderstandings occur; and the consumer is left wondering who to trust.

Advice requires the adviser to exercise judgment, discretion, and ultimately, based on experience and qualifications, to make a recommendation to the client. Financial advisers, by their nature have more than one product in any category on their APL, and offer a variety of choices of solutions.

In the NZ context, the Code of Conduct - which is proposed to apply to all "advisers" will surely catch the employee of the vertically integrated organisation. This will inevitably lead to significant expense, and I have no doubt that these organisations are resistant to funding the expense of meeting Code standards for what is not an advice process.

But regulators need to recognise and acknowledge the facts and provide the proper regulatory framework within which vertically integrated organisations can operate. Forcing them into a 'best interests', 'client interests first', or whatever is your preferred terminology, distorts the picture for those consumers the regulator is trying to protect. It also causes confusion among the management of these organisations that appear to be faced with meeting a duality of standards.

So rather than leaving the consumer guessing, it would surely be advisable to refer to the product salesperson in more accurate terms, e.g. Westpac Product Specialist, which describes the function perfectly, no confusion, no obfuscation, no ambiguity.

Add the required disclosures as outlined above, then the function and position of the Product Specialist is clear and unequivocal.

This also leaves the consumer in no doubt when dealing with a Financial Adviser, that there is an obligatory process to be followed by the adviser, as per the Code of Conduct, that relates to securing the most appropriate solution available in the market.

Making clear the functions, the purpose, and the processes of the various providers of financial guidance in the market is, or should be, a prime objective for regulators.

For far too long now, these issues have been neglected and been a source of confusion and uncertainty, and it’s time these should be addressed. In this instance, regulators on both sides of the Tasman appear to have dropped the ball.