Has FMA picked the wrong target?

If I were reacting to political pressures for increased scrutiny of the financial services sector, I would also start with the easiest targets. Financial advisers have poor lobbying skills, are fragmented in nature, include a variety of talents, and (up until the arrival of the Regulator) have had no minimum standards imposed upon them.

That being said – a constant vigil on those financial advisers who have made it this far is probably a useful next step, allowing the Regulator to focus its limited (albeit growing) resources to the more sophisticated villains.

I agree with your unnamed RFA, rather than Tony Vidler. The insurance companies should be taking a much more pro-active role in managing the quality of RFA advice.

This could be done by, from time to time, requesting (if not requiring) an RFA to provide a copy of the written advice, signed off by the client, on which his recommendation to change the provider from Company A to Company X is based.

I've been providing detaailed written advice on every recomendation I have made since the mid-90s.The introduction of the regulatory regime was pretty much painless. I am APPALLED at the level of advice some people are given - some still not much more than a benefit illustration. It is advisers at that poor level of quality that should be culled, and the insurance companies have a great deal of power in this area - even more so, since 1 July 2011. Unfortunately, it still requires a level of willingness on their part, and that seems to still be lacking.

I couldn't agree more Mike but the issue is clouded by the current structure of the industry where advisers work hard to retain ownership of the client but expect to be paid by the company. Unless the company receives a copy of the full advice provided by the Adviser (which the Adviser is unlikely to provide just in case the company then tries to peddle their wares to the client direct) they are relying on the Adviser to tick a box that says that full advice was provided.

So the buck will need to stop with the AFA/RFA and the companies have an easy "out" that will mean they can continue to accept business that may not necessarily be in the clients' best interests.

The easiest way to improve accountability is to have the clients pay the Adviser for their advice. Then they will need to justify why they are recommending one product over another.

That would also mean that insurance companies would have to compete with each other in more important areas such as coverage, definitions, and price - not who has the best commission terms and overseas trips.....

And by shedding the massive upfront commissions, trail commissions and "soft commissions", clients should gain access to more affordable cover that would go a long way towards solving NZ's under-insurance problem.

Vidler questioned why AFAs were being monitored so closely when they had just completed a process that included having to prove they were trustworthy as well as qualified.

Perhaps Tony because the majority of AFAs are in the investment game and HAVE to be authorised to continue operating as was decreed by the Government. Remember it was the "bad apple" investment advisers who recommended Bridgecorp etc to investors that cost many people their life savings (and generated all the bad headlines) RFAs who represent mainly the mortgage and insurance adviser fraternity were not the problem (by in large) and this is why the Government ruled at the eleventh hour that they would not need to be monitored so closely. I happen to know some fantastic investment advisers but like any industry the bad operators always spoil it for the good ones.

The FMA and the Courts are doing a fine job of prosecuting the sophisticated villains. I also find it curious several Judges have noted there had been no allegations of dishonest conduct made against several of the accused that were found guilty and sentenced to lengthy prison sentences. Therefore we have the spectre of the “honest” accused who merely engaged in illegal actions which caused investors tremendous lose. I am sure it is a comfort to the investors to know there was nothing dishonest about what the accused did.

Which brings me to my point; the politicians and the FMA probably don’t care what the RFAs get up to. If an RFA twists business or gives advice to KiwiSavers or fails to provide a written risk plan and detailed written advice the result aren’t a lot of investors being millions out of pocket. There is plenty of other low hanging fruit for the FMA to pursue. Politicians want to see the FMA tackle the dirty dairying and environmental polluters not ferret out Nancy Adviser guilty of not preparing a written risk plan. Nancy wouldn’t make section O page 10 of the Herald, however Harvey the dirty dairyman sentenced to 2 years in clink will make page 1 and allow the Politician to wallow in the importance of achievement.

My recent experience have shown the regulation have done nothing to deter cowboys. Give you my two experiences since the regulation:

1. My client terminated her policy after one year, and told me she got a cheaper premium from an adviser from a recently merged insurer. She showed be the new policy, and yes, truly, it was cheaper but minus the TPD cover. Take that away, the premiums would have been about the same.

2. Another client request for his policy of 18mths to be terminated (reviewed his policy only 6mths prior). He say to me the adviser from "C" told him he can cover him and his wife in one policy. When I asked if the new policy had been in place yet, the answer is no, the adviser did not advise him not to cancel policy until the new one has been in-force. I also asked him if the adviser let him sign a replacement of policy declaration, and he did not recall having done so. I told him, I will do this for him as a professional, I will ask the insurer not to cancel the policy until his mind is clear that he really wants to make the switch.

Didn't experience this more than 10 years prior. So much for the new regulation.

Seems there are more desperate advisers out there nowadays who cared more for their pockets than clients' interests and absolutely no respect for their fellow advisers. I forsee if nothing is done sooner (I'm not holding my breath), it will become a dog-eat-dog business. As for me, I have already started a non-financial related business.

Amused, I agree with you.

There are many AFAs operating today who directed swathes of retail clients into entirely inappropriate investments with now defunct finance companies. It must be galling for their victims to now see them not only anointed as Authorised Financial Advisers, but strutting about the marketplace and pointing the finger at others.

To the FMA, I say to completely ignore Vidler’s gratuitous attempt to have the regulator ease up on AFA monitoring. More is needed, not less.

Indeed, I support calls that have been made to allow the FMA to delve into each AFAs past investment dealings and client recommendations, and to disqualify those (numerous) individuals who are guilty of having destroyed the accumulated wealth of fellow New Zealanders through a pattern of poor investment recommendations.

As an RFA and having been in the industry 12 years I'd like to make the point that good insurance advice has nothing to do with whether it's in writing or not. Bad advice can be in writing too. From what I continue to witness out there there seems to be a complete lack of understanding of the clients' financial situation, lack of knowledge of the range of products available in the market and in what situations to recommend certain products. It's not rocket science - or is it?

Kev - sure, good advice may not be written and bad advice can still be written. But the point is that WRITTEN advice can be assessed by a third party when required. Giving verbal advice - relying on memory in essence - may be fine when all goes well, but if/when TSHTF, then the RFA who has not given the advice in writing may find himself at the expensive end of a long, hard equation.

Who says current RFAs didn't sell or direct clients to Bridgecorp etc before regulation? Some may have avoided scrutiny by not becoming AFAs? How would you know?

Fidelity Life Adviser Alert today, “Saving Kiwis can also offer a servicing function to RFAs with existing KiwiSaver books or clients”. Since when did the current legislation allow RFAs to have existing KiwiSaver books or clients? Complaint has been forwarded to the FMA.

Jim Dowsett, no one here said that. Except, that is, you.

I read “Mind Bogglings” comments and can’t help wondering whether this is the main game.

What about going after the folks who (only a few years ago) repackaged research to suit their products - claiming that it was independent – with clients losing money as a result? Or the groups that zip in & out of the country, selling their strategies without any requirement to be regulated or scrutinised? Or how about those product promoters who advertise heavily to NZ investors, whilst they reside offshore and away from Regulatory oversight? Perhaps they would be better targets than devoting resources to a typo?

Mind Boggling, before you send a complaint to the FMA, please get your facts straight.Legislation dictates that RFAs can't give advice on Category 1 products. It is quite in order for an RFA to have a 'book' of KiwiSaver clients as long as they do not provide those client's with any advice.

Most RFAs I know, who have KiwiSaver client's, work in with an AFA to provide advice to their client's.

And please, for the sake of the uninformed, this is my personal views.

Yeah point taken Mike - it's a cover your ass thing putting stuff in writing. Just making the point that putting it in writing doesn't necessarily make it the right advice...

Mind Boggling, there are plenty of RFAs who have existing KiwiSaver clients from before the current legislations were introduced. Fidelity is offering an advice service through a qualified AFA. There is nothing in the legislation that says RFA must not have KiwiSaver clients, it merely says they cannot give advice to them. Don't waste the FMA's time because you failed to read something correctly or interpreted it as you wanted!

An RFA who claims to own a book of clients whom own Category 1 products and does not provide those clients with any advice firstly fails the minimum standards of client care, code standards 6 thru 13. Secondly it is not ethical to claim ownership of a group of clients you cannot legally provide advice to.

The only proof the FMA will need to prove a breach of the legislation, is on the balance of probabilities, the RFA who claims ownership has received trail remuneration for providing on-going advice or the client believes the RFA is the one responsible for providing them with advice on their category 1 product.

Mr FRA, answer this question. What is your client going to answer when the FMA asks your client, who provides you with advice on your category 1 product? If they say it is you Mr RFA, then sayonara to your FSP registration and don’t let the door hit you on the backside on your way out of the industry.

Not only have the FMA picked the wrong target here they have also made a major mistake with the new AML/CFT laws which come into force next year.
The majority of us AFAs deal with mum and dad investors, who should already have been vetted by their banks in terms of CDD. I accept that we have a responsibility for caution in this area and that STRs are a vital part in the chain, but please tell me who would I be more likely to launder money through, an AFA, a car dealer, boat dealer, Real Estate agent, or the myriad of other shady operations that will facilitate this?

Tony - you should be aware (excluding QFEs) there are only two forms of advisers

1) those who are Authorised, and 2) those who are not. (you might notice the full stop :)

....Both of which must be Registered.

This was clearly stated by the FMA at the IFA conference as I recall.

When you talk about RFAs you are not being specific enough, while we know what you mean - effectively you are talking about both authorised and unauthorised financial advisers.

The FMA has also suggested one should not identify themselves as an RFA, particularly with the acronym as it appears like a qualification.(eg CLU)

So why do you and Good Returns repeatedly refer to the ‘Registered Financial Adviser’ rather ‘advisers yet to be authorised’?

Cheers

What I would really like to know Tony is, are you being deliberately inflammatory just to be talked about? I have read a couple of your articles before and believed them to be genuine attempts at discussion, this however is finger pointing with no substance being provided and at the same time being deliberately provocative. If you have ANY proof of your sweeping claim, I suggest you give the names of the offenders to the FMA along with your proof. At times I get seriously disillusioned with an Industry intent on tearing itself apart with accusations and claims as to who is the most/least honest. Tony, get a grip.

A lot of misinformation in some of the comments above, or at least some assumptions.

The original point made in the article is that AFAs have already gone through a 'checking' system in order to become AFAs. RFAs however have not had any checks to gauge the quality of their advice or knowledge. The do not require any education qualifications to run their business, and I agree that the KiwiSaver providers should not continue to pay trail commissions to RFAs who are unable to give advice to their KiwiSaver clients.

Some of the comments above indicate there are some RFAs giving poor advice.

But who's checking on them?

Malcolm, I suggest you come down off your high perch for a minute as the thin air of holding yourself above Registered Financial Advisers has affected your logic. RFAs by in large are mortgage and insurance focused only and have not the slightest bit of interest of expanding into the investment field. With this in mind the vast majority of RFAs won't be becoming authorised. To do so would be something akin to shooting ourselves in the foot given all the additional regulatory requirements AFAs must go through now just to advise on investment products.

Correct, Amused - extra costs & extra regulatory requirements to provide advice to KiwiSaver clients for....virtually nothing in terms of revenue.

Having watched this thread for days, it is time for some corrections methinks.

I did not provide a story. It follows therefore that I did not try to be provocative or upset folk.

The journalist approached me as part of a story to be run in Asset magazine, dealing with wider issues. Part of that story involved a discussion about how the regulators were seen to be approaching different parts of the market. The comments I made are accurately reported, however they were made in the context of a wider conversation that included a number of other observations and views.

Taking a piece of that interview and running it as a separate story on another platform was an error. The journalist apologized, and I accepted that - but the story (and comments) were already running. That is life; sometimes people make mistakes.

For all that, the key point in this element of the discussion was that the non-QFE RFA space is logically where one would perceive the greatest "variability" of standards to be, and therefore where one would expect regulatory attention. Like it or not, it is a fact that in the AFA approval process there is a degree of "fit and proper person" testing which does not exist in simply becoming a Registered (But Not Authorised) Financial Services Provider. It is equally a fact that a QFE is expected to take a front-line regulatory responsibility for its advisers.

Therefore without claiming any superiority of any breed of adviser, one can observe fairly that they are different beasts. Making such an observation is neither an attack on the advisers (of whatever sort) or the FMA. It is just an observation. Only the paranoid would believe otherwise. To somehow read into such an observation that the observer is claiming higher levels of honesty from one or the other types of advisers is ludicrous and ignorant.

Making such an observation is not a finger pointing exercise, a wildly sweeping claim or even a suggestion that AFA's, QFE's and issuers of securities do NOT require monitoring.

So here are several other observations that will undoubtedly inflame some anonymous acronym-anals further.

1. The FMA's own website uses the acronym RFA. It has been accepted officially as an abbreviation for expediency within the industry. Why get hot and bothered over the fact that the legislation doesn't use the acronym? Get over it.

2. Every financial adviser will ultimately be held responsible for the advice they give. Whether they will be held responsible by the market regulator, their employer/QFE, a DRS or the court of public opinion - they will be held responsible themselves. The writing is on the wall.

3. The industry is still in the early days (hard to believe perhaps, but true nevertheless) of regulation. Many aspects of the industry are still being observed and learned about - and one of methods one would presume any half smart regulator would look at is the public comments of the industry participants. make no mistake, the FMA has a lot of people who are way more than half-smart.....Question: how well do we portray ourselves as an industry when the majority of the debate is "play the man not the ball stuff" from pseudonyms?

Honestly, it is hard to take that sort of debate seriously, and it doesn't help our overall image as an industry with anyone.

For the record, I have been very committed to the development of a financial advice profession for many years now. I happen to believe that professionalism is not defined by your chosen licensing status, business structure, area of expertise, market focus or anything similar. A bank teller within a QFE has the same ability to be a professional as does an actuary.

Professionalism is essentially about behavior, ethics and practice standards. It is not about your chosen acronym - it is about how you do what you do, not what you are labelled.

Tony Vidler
Strictly Business Ltd