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The sheriff is coming

Advisers have been given notice that the Financial Markets Authority is starting up a programme of adviser monitoring visits next week.

Friday, August 26th 2011, 9:05AM 11 Comments

The FMA says it will begin making visits to Authorised Financial Advisers (AFAs) as it steps up its monitoring activities under the Financial Advisers Act.

FMA Head of Primary Regulatory Operations, Sue Brown said monitoring was an important part of the new professional era, enabling FMA to check that standards are being met.

“We expect that in most cases we will simply be helping advisers refine what are already sound practices. Where we see potential for improvement we will work with advisers to ensure they comply with their obligations under the Act.”

One aspect of visits that has generated enquiries from some advisers has been the implications of a visit for the privacy of client files.

“If an adviser has obtained their clients’ authorisation for FMA to view their files, for example, by acceptance of terms and conditions of advice that include information about FMA’s ability to view client files, they will not be in breach of the Privacy Act by providing information to FMA,” Brown said.

When advisers became AFAs they became bound under Standard Condition 4 to ensure that all records concerning their financial advice business, including client files, are available for inspection by FMA at any time.

When FMA writes to advisers notifying them of a forthcoming monitoring visit it will remind them of the obligation to have clients’ files available.

Any AFA who has not yet obtained clients’ authorisation should take all reasonable steps to do so before monitoring begins.

FMA has powers under section 25 of the Financial Markets Authority Act to compel an AFA to provide the information in client files. The provision of information in response to a section 25 notice does not breach the Privacy Act.

“FMA is hopeful we will not have to use this power on a significant number of occasions as most advisers will be well prepared for the start of monitoring visits,” Brown says.

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Comments from our readers

On 26 August 2011 at 11:30 am traveller said:
I suppose in time advisers will find out what " helping advisers refine what are already sound practices" actually means. I imagine some sound practices will resent such intrusion. And will such "refinements" be enforceable?
On 26 August 2011 at 2:57 pm Alison said:
These comments from the FMA imply that if a client does not give permission for the FMA to view their files then the FMA can just ignore that and proceed anyway. I doubt the FMA is on sound legal footing there and suggest they seek legal advice.
On 26 August 2011 at 3:11 pm James said:
The FMA WILL NOT VIEW my personal investment file. There is nothing in the act which says they can. I expect this is the same for client who do not wish someone they ahve never met viewing their files. This is NZ people still have a democratic right to their privacy. As Alison suggested the FMA maybe on some Bexley ground here, and may need to look at their legal cover.
On 26 August 2011 at 4:01 pm hmmm said:
When advisers became AFAs they became bound under Standard Condition 4 to ensure that all records concerning their financial advice business, including client files, are available for inspection by FMA at any time.

James - you are an idiot

On 26 August 2011 at 4:26 pm John S said:
As a user of financial advice and the advisory industry I think i make the following comment it is a bloody cheek for some w@#$%r from the "ministry" to pry at my private business. I am more than happy with my advisor and the advice I receive, and I say again it is not for some w@#$%r from the FMA to tell me otherwise. I will ensure that inside the from cover of MY file the appropriate message is posted with the two finger salute.
On 26 August 2011 at 5:11 pm Mike C said:
It seems to me that the key is to "take all reasonable steps" to gain a client's authority for someone from the FMA to see their file - if the client does not respond or if the client declines to give that authroity that should be the end of the matter.
Any legislation which overrides the client's own authority must be fundamentally flawed and I am sure somewhere a client will challenge the FMA's stance of "we can do what we like authroirty or not".
Given the FMA is supposedly there to help protect the consumer/client to ignore the consumers authroity would be self-defeating, would it not!
On 26 August 2011 at 5:21 pm Amused said:
I seem to recall reading a post on here a month or two ago about this very issue i.e. the FMA accessing clients personal information from adviser's files. At that stage the FMA was "investigating” the legality of their being able to view this information with the way the Act had been written. The tone of the article was that this issue had been completely overlooked by the regulators themselves (what a surprise) and was in need of an urgent “eleventh hour” solution or else the whole process of monitoring AFA advisers was going to be a joke. As far as I am aware there has been no amendment to the Act to correct this oversight? Can someone outside of the FMA itself please enlighten advisers as to where we stand on this subject now? I would hate to be taken to task by a client (i.e. lawyer) via my dispute resolution service provider for allowing the FMA access to my client’s personal information when they were not “legally” entitled to view it.
On 26 August 2011 at 5:43 pm alison said:
Another point: anecdotal evidence suggests that stock brokers are pulling a swifty over the FMA (although perhaps it's a problem with the regulations). Brokers are sending out to their information requests which demand the client disclose their "life history", including very specific details of their financial affairs. Quite righlty most clients regard this as intrusive and don't want to comply. That means the brokers classify them as "execution only" clients with very few rights as to disclosure etc. In fact, most of these people will now have less protection than they had pre-regulation.
On 26 August 2011 at 6:04 pm Tony Vidler said:
Just to play devils advocate, do you think the simple majority of consumers would take some comfort from knowing their adviser had been scrutineered and come through it with a big tick for their advice processes and business management?

Isn't such a regulatory endorsement marketable?

Just a thought....
On 29 August 2011 at 1:44 pm Giles Thorman said:
Can someone tell me that as the new rules only came into effect from the 1st of July 2011, does that mean that we only have to make files collated post July 2011 available to the FMA?
What irks me once again is the stance of the FMA. Brokers have to comply with the Privacy Act and are asking for some guidance as to their position, (like 'amused' I also recall this question being raised not that long ago). What do we get from the FMA? No clear legal ruling that we will not be in breach of the Privacy Act but a threat from them that we will be in breach of the rules pertaining to our being AFA's or RFA's. FMA PLEASE stop threatening at every available opportunity and start helping us all to comply with the variety of legislation in this country. We all want to aim for the best advise for the client.
On 31 August 2011 at 9:06 am Mortgage Broker since 1999 said:
All this is now getting to be a bit of a joke.
I was working towards AFA and was 80% finished and now i am putting it all on hold.
I was told that it would be better for my business and we would all have to eventually get to this level.
Over the last few months i have had more clients come to me from an AFA than my clients leave me to go to an AFA.
The reason being better service and advice on Cat 2 products.
Also i know of a new Cat 2 product adviser who started business last month and has done no structured training at all, and he had no problem getting PI cover and has signed up agency's with 7 life cover companies, I don't understand how this can be done in this new environment ????
We have been told that there has been very few complaints that have come through to this point for existing advisers.
My concern is the new advisers starting, as apparently from my experience they can get PI cover and agency agreements with out any formal basic training.
Regulation has cost millions to set up and they seem to have missed this huge loophole......????
This would be so simple to fix.....if you haven't achieved the correct training points then no PI cover which means no life agency agreements which means no broker..... Pretty dam simple.

Half the problem is the PI cover providers and Insurance Providers not coming to the party in this new environment.

One last thing....How can a MikePerro adviser who is not an AFA sell Kiwisaver products, apparently this is the case???

Something not quite right here.
Commenting is closed

 

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