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Measuring the success of regulations

If investors fail to show greater confidence in advisers – and greater appetite for a broader diversification of products – then questions will exist as to the worth of the recent raft of financial regulations.

Wednesday, September 21st 2011, 6:29AM 9 Comments

by Benn Bathgate

That is the view of Financial Markets Authority (FMA) chief Sean Hughes.

"It's early days, but if it doesn't result in better quality financial advice then one questions was it worthwhile?"

Hughes said he didn't believe in regulation for regulations sake, and "if we can't see investors having greater confidence in their adviser and returning to the market and seeking a broad diversification of products, then I would be saddened by that."

"All the cost and compliance burden, it would be questionable as to whether it was worth it."

Hughes also explained the thinking behind the FMA's controversial ‘cowboy' advertising campaign - and questioned whether the message was received as intended.

"Many New Zealanders were not aware that financial advisers were not regulated before hand," he said.

He said that the point of the ‘cowboy' campaign was to raise awareness that a point of difference exisited between those who were authorised and registered and those who were not.

"What we were trying to say through that advertisement - whether in fact everyone got that message or not - take the trouble to find out and have greater confidence in those who have taken that trouble."

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to

« FMA wants overseas crime loophole fixedFMA's targets identified »

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Comments from our readers

On 21 September 2011 at 9:47 am DSI said:
Sean I think you will find that confidence in the industry will mainly come from Investors receiving positive returns that outstrip the fees charged unfortunately the global financial crisis that is still in play will put an end to that happening in the foreseeable future. An industry that keeps throwing people into the markets regardless of the outlook doesn't deserve any form of confidence and of course regulation doesn't cover Investor returns funny that! In my opinion Investment Advisers should not be called Advisers instead they should be called Investment Sales People because that is what most of them are.
On 21 September 2011 at 10:43 am Mac said:
How exactly will the FMA measure the success of the new regulations? Will it be a subjective type measure i.e. public polls with a generic question? Alternatively will it be objective, such as the findings from the current FMA adviser audits measured against defined benchmarks? If the measures are not objective, then it will only be an exercise to justify additional regulatory control.
On 21 September 2011 at 10:51 am Dirty Harry said:
Sean hits the mark, and DSI is a mile off. So far off I wonder where their interests really lie.

Firstly Mr Hughes: When the worst crooks are still outside the regs (loan sharks) - whether regulated or not they are out there and we have yet to see any meaningful action going on in that space; when the cowboy ad misses the mark and no meaningful or informative campaigns for (the promised) public education has yet been seen; when the regulator is seen as bumbling, disorganized and confused by the industry whose respect it must first win, and finally when a large hole appears allowing overseas crims to register here then Mr Hughes may be so deeply "saddened" we could lose him indefinitely on "stress leave". I am sad too, because for years I looked forward to regulation, hoped it would be a paradigm shift, hoped it would give the industry a brighter future, but for the most part all I have seen so far is time and money taken from me and very little meaningful change. There is still time, and still a chance to get it right, and I sincerely look forward to it.

DSI: As a DIYer I suspect you may have pulled out at the bottom and made permanent some shorter term losses by shorting a long-term plan, but no adviser, government, regulator or fund manager has EVER guaranteed returns, (most who have tried only guaranteed the capital, and have come up short – fidelity CG bonds and such like). Cash, which is where you, DSI belong, is relatively reliable, and your local bank can offer you fair rewards for not taking any investment risk. One of the main thrusts of regulation is meant to be that processes and practices improve. There is increasing pressure on advisers to justify their recommendations, look at their portfolio construction and use more research. You can ignore that if you wish, and I’m sure once the recovery is well and truly proven to have happened, you will jump back in just in time for the next downswing. But at least you can be confident you won’t have paid any of us to throw you in before that.
On 21 September 2011 at 11:41 am DSI said:
Dirty Harry: You should stick to what you know because you are useless at being a clairvoyant!!!
On 21 September 2011 at 12:13 pm Johnny Adviser said:
If you're explaining , you're losing. Start again with a new ad agency, Sean.
On 21 September 2011 at 2:51 pm Amused said:
Dirty Harry your first paragraph sums up brilliantly the status of regulation to date so far. Well said!
On 30 September 2011 at 10:59 am 6ftndr said:
it doesn't matter how you wrap the box, you can use gold lined paper, add some sprinkles, add a bow - in the end it is still a box

On 30 September 2011 at 11:20 am Andy said:
The 'Cowboy" advertisement failed completely and was totally inaccurate - the cowboys are still in the industry and still able to join obviously. The new Act just scared some of the more cautious advisers away! Legislation is still in its early stages, but does nothing to promote investor confidence or security. It simply gives them a course of action to take AFTER it all goes wrong! I have said this all along - the same investment mistakes will be made, and the same bad finance companies and loan sharks will continue to offer unsafe securities to uneducated investors without quality financial advice!
In my opinion - yes, at this stage the new legislation is a big waste of time and money.
I have far more relevant qualifications to my role than silly AFA status, and it involved 5 years of intense study and regular updates, yet they are not recognized by the FMA.
Sour grapes - yes.
Dumfounded by bureaucratic stupidity - yes.

All the FMA had to do was Listen to the needs of clients, and do as they ask. Just like we already do.
On 4 October 2011 at 10:05 am Dirty Harry said:

The cowboys are still out there. Here is a great "measure" of the "success" of the regulations:

“Auckland-based eFeMCee Finance Limited (FMC) and its director Albert Loots were fined $55,000 after pleading guilty to 40 charges relating to charging unreasonable fees and misleading borrowers following a Commerce Commission investigation.”

So 40 offences, and a guilty plea. How many others has this guy hurt? This turkey has been a director of this company since February 1996!!!

“Despite moves to regulate third-tier lenders, a Consumer Ministry study recently found 35-40 per cent were not listed on the financial services provider register as required, meaning their clients do not have access to dispute resolution services. A BusinessDay search of the register yesterday did not return results for either eFeMCee Finance or Albert Loots.”

So, ahem: About that ambulance at the top of the cliff? The 35-40% thing is old news now, but what are the authorities doing about it?

And what about the massive fines for not being on the FSPR? Surely a great way to put a barrier beside that ambulance would be to make an example of this turkey and roast him with big fines? If he can just stump up 39000, and 55000 and write off some loans he must have made a lot of profit over the last 15 years!
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