by Rob Hosking
“There’s a risk they might end up doing all the compliance work.”
Hutton emphasises the IFA supports the broad goals of the government in wanting a more closely regulated sector.
“It’s about how you go about it.”
The difficulty with the proposed rules for platforms and portfolio management systems is that there are frequently multiple providers involved, and the proposed set of changes – set out in the Ministry of Economic Development’s Review of Financial Products and Providers (RFPP) – will, in its current, form, result in a lot of duplicated disclosure.
“The nature and extent of contracts between members of the Institute, acting as investment advisers, their investor clients and platform and custodial service providers take many forms. For example, the Institute member may negotiate the terms to apply to services to be provided to the Institute member’s clients by an independent platform and/or custodial provider, even where the investor client signs a contract establishing a direct service relationship with the platform and/or custodial provider.
“Alternatively, the investor client may arrange their own platform and/or custodial service independent of the investment adviser.
“In other circumstances, the platform and custodial services provider may be part of the same corporate group as the member of the Institute providing investment advisory services.
“The resulting regulatory environment should not preclude and should support the continued diversity of service offering.”
If the new rules require separate disclosure from the investment adviser, the financial product and the portfolio management, platform and custodial service are not structured correctly, “the consumer will become confused and will be unable to accurately determine who is providing what service at what price.
“The consumer may over or under estimate charges or fees, defeating the purpose of the disclosure requirement.”
The IFA also notes the risk that, where some solutions or services are provided by parties independent of each other, that one provider, such as the adviser, could end up carrying the can for the others.
“The regulations should be clear as to when disclosure by a financial adviser may be consolidated with disclosure about a financial product or other portfolio management, platform or custodial service fees, where there is a clear advantage to the consumer in doing so.
“Where the portfolio management, platform and custodial service are being provided together as one package promoted by a single financial intermediary, the Institute submits that the option of providing a composite disclosure should be permitted, disclosing, for example, individual and/or total costs across all of the services.”
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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