Advisers 'should be next for regulator check'
First it was banks, then it was insurance advisers – now there are calls for adviser groups to come under the microscope as part of New Zealand regulators’ response to the Australian Royal Commission of Inquiry into Misconduct in the Banking, Superannuation and Financial Services Industry.
Monday, May 28th 2018, 6:00AM 
3 Comments
by Susan Edmunds
The Financial Markets Authority and Reserve Bank have asked bank bosses for details of what they are doing in response to the misconduct brought to light by the Australian inquiry. They this week asked life insurance companies for the same information, including steps being taken to tackle the potential for misconduct. They have until June 22 to provide the details.
Adviser Sonnie Bailey, who worked as a financial services lawyer reviewing adviser files in Australia, said he hoped to see attention turn to adviser groups next.
“I also hope the FMA contacts industry associations and asks whether they pay anything more than lip service to enforcing their codes of conduct.
“It's probably beside the point given that it's winding down, but the IFA's Code of Ethics required members to ‘act in the client’s best interests, above consideration of personal gain’. And the first principle of Financial Advice NZ's Code of Ethics is to ‘place the client's interests first’.
“I haven't given much thought as to whether the FMA has much jurisdiction over Financial Advice NZ etc but to my mind, there shouldn't be anything stopping an effective regulator from engaging with stakeholders in this way.”
He said he would like to see senior people in the industry admitting the Australian experience had led to genuine soul-searching.
“Instead of knee-jerk reactions that ‘everything's fine’ and ‘there's nothing to see here’, actually using this as a prompt to pause and reflect, and see whether there's anything that might need to be changed.
“I don't mean soul-searching as an admission of guilt - just individuals and organisations actually being healthy and well-adjusted in light of new information coming to light. As fiduciaries taking the longer view and thinking this might actually be best for shareholder value, not to mention Kiwi consumers.”
The Financial Markets Authority is not completely ruling it out.
“We’re comfortable that it is appropriate to prioritise our work on banks and life insurers, and at this point we haven’t made any decision as to whether that needs to be expanded in the future,” a spokesman said.
Gavin Austin, of ABC Compliance, and formerly with the FMA, said he was not sure New Zealand adviser groups were big enough to warrant the action. “It’s unlikely but who knows? I don’t know if the FMA has the resources.”
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Comments from our readers
The vast majority sit in the RFA space when it comes to managing advisers and many, if any, don’t have any oversight over operations unless there's a serious complaint raised through a provider.
This is certainly true of the dealer groups, and while the likes of the industry associations have codes of conduct, they too have little to add unless there is a serious complaint brought to their attention.
Either side, dealer group or industry body, have little in the way of control or even requirement to compel advisers who are not AFA’s to adhere to the AFA code of conduct either.
Add to that the advisers who are not AFA advisers that sign up to those industry bodies with codes of conduct, do so to be better advisers. Typically they will comply with the association code of conduct because that's part of the point of joining.
The rest don’t sign up, because they either don't want to or don't comply. In the context of this, there's little point to pursuing the exercise of chasing industry bodies for information. They have little to none.
That said, in the new environment coming, I expect that will change greatly.
In the meantime BAU.
The steps needed to identify and deal with those who serve their personal interests first are an area of good faith debate.
I was quoted in the article but didn't write the article or its headline - and I don't think the article accurately captures my views or puts them into context. For one thing, my comments about soul searching in light of the Royal Commission aren't just narrowly relevant to the FMA contacting dealer groups and industry associations, but to the financial services industry more broadly.
The FMA engaging with relevant parties - including industry associations and dealer groups - is in my view a good thing. When I hope that the FMA engages with adviser groups or industry associations, I'm not hoping for the FMA to do so in an adversarial or sensational fashion but in a spirit of dialogue and good faith engagement. In my opinion, a regulator having productive conversations with groups of advisers is a sign of a healthy industry.
One thing that is missing from my comments about industry associations is that I was speaking in the context of Australia's FPA's conduct in relation to "celebrity planner" Sam Henderson. I'm not suggesting that non-AFA advisers should comply with the AFA code either. But I am suggesting that if an industry association has a Code of Ethics requiring members to "act in the client's best interests" or "place the client's interests first", it would be nice to have some assurance they're not paying lip service to it - like the FPA appeared to be doing in Australia in relation to Sam Henderson.
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