FMA: Perimeter enforcement underway

Thursday, July 21st 2011, 8:37AM 6 Comments

by FMA

Since 1 July I've noticed several advisers asking when are we going to take action against advisers who are breaking the new rules. That's an entirely fair question and a function expected of FMA. Now that the majority of initial licensing is complete I have put a team together to focus on the perimeter. I'll explain what that means. Inside the 'stadium' are the regulated- those who have gone through the effort and investment of getting themselves properly registered or licensed, whether individuals or firms - RFAs, AFAs, QFEs etc. They have tickets to the game. Home watching the game on TV are those who have decided that being a financial adviser is not for them. So they have stopped (or not started) doing work that would otherwise require them to be registered or licensed. The right thing to do. Then there are the perimeter players - some unaware of their obligations, others operating illegally, often knowingly. These include people without tickets who hover around the stadium looking for an opportunity to jump the turnstiles, unseen. These people: - May be providing financial advice without being registered. - May be RFAs still doing personalised investment advice, eg KiwiSaver, without being authorised. Some financial advisers may not realise they are practising illegally, having ticked only 'Broking services' on the Financial Service Providers Register, thinking it meant mortgage, insurance or share broking. If they are providing financial advice then what they should have ticked is 'Providing a financial adviser service (such as financial advisers, insurance advisers and mortgage brokers)' . 'Broker' in this legislation has a particular definition to do with handling client money. Now would be a good time to double check your profile on the register and correct your registration details if necessary. As we do this perimeter enforcement work we will publicise details of action taken so those with tickets to the game don't feel cheated and those thinking of operating illegally will think twice. My team will be even more effective if professionals help by showing us where to look if they spot illegal activity. We have a pile of complaints and tip-offs being assessed already and appreciate being given reliable information in good faith. In this way professional advisers can take the lead in improving confidence in your industry and outcomes for investors.

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Comments from our readers

On 27 July 2011 at 10:46 am Mike said:

Can someone please explain the logic behind RFA's not giving advice on Kiwisaver.
I have no problem with rigorous regulation on advisers giving investment advice on investors wanting to invest lump sums of their money in lieu of the finance companies demise yet I cant get my head around why the same should apply to Kiwisaver.

Under the conditions of Kiwisaver an employer can sign up ,say ,10 staff to a default provider with none of the parties knowing a thing about where its invested, what a managed fund is etc etc, and yet an RFA, who has dealt with these kind of things over maybe 10 years, is now breaking the law if he wishes to help.

Why is the employer not put under the same scrutiny as what an RFA is when they are doing exactly the same thing? i.e getting people to join Kiwisaver.

This situation will appear even more senseless if compulsion becomes a reality.

On 29 July 2011 at 11:18 am btw said:

Mike, its because of the trust and reliance an investor places in the advice of an RFA. That same level of reliance doesn't exist when an employer signs up an employee to KS.

On 29 July 2011 at 12:01 pm Mike said:

Gee talk about completely missing the point.
An investor in KS cant place any trust or reliance on advice from an RFA because an RFA cannot give advice under the new regime.

On 30 July 2011 at 9:01 pm Andy said:

I totally agree with you Mike. What is the point of the legislation? Is it to:
a) get rid of the cowboys
b) significantly limit access to Kiwisaver advice
c) place more risk on Employers by having them explain the intricacies of Kiwisaver
d) continue to let the ignorant get advice from the ignorant, and let the wealthy get advice from AFA's who legitimately charge a fee, or
e) keep good advice from the poor and uneducated, and give it only to those who can afford or are prepared to pay for it?

On 1 August 2011 at 8:32 am Mike said:

Thanks Andy
Someone got the point!!!

On 19 August 2011 at 2:25 pm Lisa said:

I totally agree with you both Mike & Andy!
I beleive RFA's should be able to give advise about KiwiSaver (only). I too have been in the industry over 10 years and dealt with PSP's and managed funds so used to advise my insurance clients to join KiwiSaver. Since 1 July I've had a couple of banks talking customers into transferring out of a KiwiSaver provider I put them into, with funds doing much better than the bank's!
So because I'm now an RFA I can't advise them - but the little girl at the bank did under her QFE - how was that giving the KiwiSaver good advise? And when will the banks be held accountable?
I'd be happy to sit an exam so I could advise on KiwiSaver Funds only - it is so very regulated in itself, why are the authorities making it so complicated for the RFA's that want to do KiwiSaver with their clients?

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