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Compulsory adviser registration far from dead

The debate on compulsory adviser registration has been largely silent for several months now, however it appears the issue is far from being dead. Philip Macalister explores some of the options.

Tuesday, July 6th 1999, 12:00AM

by Philip Macalister

The debate on compulsory adviser registration has been largely silent for several months now, however it appears the issue is far from being dead.

New Zealand First leader Winston Peters raised the idea in April when he wrote to the Investment Savings and Insurance Association (ISI), the Financial Planners and Investment Advisers Association (FPIA) and the Health Funds Associations asking them for their views on the idea of registration.

Peters said in his letter that the current light-handed regulatory regime is not working and there was a need to strengthen the Investment Advisers (Disclosure) Act 1996.

The responses from the three associations were muted. The ISI asked where's the problem? It said if there were any problems it was unaware of them. Since then ISI chief executive Vance Arkinstall has met with Peters and looked at a number of the cases NZ First has catalogued.

Meanwhile, the FPIA and the HFA didn't respond to Peters' request within the deadline.

Other industry participants expressed (many through Good Returns' Editorial page) a wide range of views, some supportive of the concept, and others heavily discounting the idea. The latter was largely because the idea was perceived as Peters' pursuing something for political capital rather than a genuine interest.

Despite the generally negative responses, a number of industry protagonists are seriously considering the issue.

ISI chief executive Vance Arkinstall says although there may be a lack of enthusiasm for compulsory registration it is highly likely that something will happen.

On that basis the ISI is forming a joint working party with the FPIA to look at options for a scheme.

Arkinstall, who has had to deal with adviser fraud when he was head of Norwich Union, says there is no way that registration will stop fraud. From his experience a crooked adviser who is determined to beat the system will do just that.

Registration could benefit the industry by stopping crooked advisers moving from one agency to another, he says.

Under the current industry practices an adviser who loses an agency or distribution arrangement with a financial services company can easily sign up a new agreement with another company.

He says the industry has to stop these sorts of people moving from one company to another. However, he also notes the current employment laws make it difficult to achieve.

On the same theme FPIA co-president David Milner has expressed a personal preference for the financial services companies to take a stricter line on which intermediaries they deal with.

His idea is for a form of self regulation where life offices and fund managers can only use advisers which are a member of a professional organisation (such as the FPIA) to sell their products.

Under this scenario the associations would then police their own ranks.

While these options have merit, they are not a great step forward from the present situation. That is the public can feel reasonably assured when they are dealing with an adviser who is a member of, say, the FPIA that that person is bound by a code of ethics and a set of disciplinary procedures.

That's fine as long as the public knows about the workings of the FPIA. However, it would be fair to say that the FPIA is at this early stage of its life is a publicly unknown body. The question remains, how do you police advisers who are not members of a professional association?

Securities Commission chief executive John Farrell says the Institute of Chartered Accountants (ICANZ) has a useful model. In fact it is the model the commission recommended to the Government when the Investment Advisers (Disclosure) Act was being formed.

Under this arrangement statutory protection is given to the name Chartered Accountant, and the only people who can use this title are accountants who are members of the ICANZ.

Another option that has been raised is the idea of making advisers pay a bond. Equity managing director Phil Briggs says registration is long overdue and he favours having a scheme that is similar in concept to the Motor Vehicle Dealers. Under this scenario an adviser would have to pay a bond of, say, $100,000 to the appropriate body.

"Isn't the loss of one's own money a deterrent for those who dishonestly lose others' money?" Briggs asks.

That bond would be like a personal fidelity fund, and used to repay clients if some form of fraud was discovered.

While there are many different views on how to tackle the issue of adviser registration, there are some common goals.

NZ First spokesman and former Insurance and Investment Adviser Association chief executive Roly Metge says proposals are designed to give the public greater confidence in financial advisers. He wants the proposals to be developed in conjunction with the industry, rather than being something dreamt up by politicians and bureaucrats and forced on the industry.

Briggs says that the chosen registration scheme "should be designed simply to stop those advisers who are dishonest, not to stifle competition for the established or stop the new vibrant advisers."

Likewise, Arkinstall says advisers shouldn't be concerned about proposals for compulsory registration.

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