The Capital Markets Development Taskforce fears the new Financial Advisers Act will fail unless it is accompanied by additional stringent measures to govern the ethical conduct and description of financial advisers.
"If incorrectly implemented, it could produce an occupational licensing regime which ultimately benefits service providers rather than retail investors," says the taskforce, headed by Wellington-based merchant banker Rob Cameron, in its second report, issued yesterday.
The new report makes a slew of new recommendations aimed at numerous big capital markets issues besides the perceived integrity of the New Zealand managed funds and financial advisory industry, but dwells on the D-minus showing in the Morningstar report published in May that ranked 16 countries' fund management industries.
"In at least some parts of our market, we have a long way to go to come into line with international best practice and thus cultivate preferable outcomes for investors," the report says, recommending "more principle-based regulation focussed on ethical standards for issuers and advisers".
The report made a number of major recommendations relating to the funds management and advisory industries, including:
Impose a fiduciary duty on financial advisers which requires avoidance of conflict of interest, independence from outside influences such as commissions, and competence to advise;
Regulate the words "independent adviser" to protect the meaning of independence;
Develop standardised, short form documents that clearly explain risks to relatively unsophisticated investors;
More standardised fee disclosure;
Make regulators able to be proactive, biased to the investor's perspective, and to penalise;
Overhaul New Zealand's settlements and payments system, in part to make capital-raising less intimidating and expensive for New Zealand small businesses, many of whom struggle to get beyond capitalisation by family and friends;
In upgrading the settlements system, explore also whether New Zealand has new global financial services opportunities in a post-credit crunch world
Develop a New Zealand-based derivatives market;
Perhaps most radically, the report recommends five principles be applied to investment advisers:
The fair treatment of customers is central to the corporte culture of firms;
Consumers are given effective, clear and accurate information about products and advisers;
If customers receive advice, it takes account of their circumstances;
Products perform as firms have led customers to expect, and service of an acceptable standard;
Consumers do not face unreasonable barriers if they want to change product, switch provider, submit a claim or make a complaint.
Principle 4 - Products perfom as firms have led customers to expect and service of an acceptable standard. My God who wrote this crap! Now firms have to guarantee investment performance. What part of 'Investing, and risk' didn't they understand. Next they'll want Government guarantees on Share market retuns.
On 4 August 2009 at 9:37 am Barry Milner said:
Absolutely right Bazza, Talk about stating the obvious, these people must either be complete idiots or believe that we are. What do they think is happening right now, with adviser disclosure, investment statements, prospectuses, needs analysis, codes of conduct and the whole raft of consumer protection legislation that already exists, every point they make is already covered. What cannot be legislated for and what they conveniently ignor is consumer greed with the constant demand for higher returns. That demand for higher returns, that greed was the main driver behind the flood of investments into finance companies, often against advice. As always when the zealots gain power the baby goes out with the bathwater.
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