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The world after licensing

Friday, March 11th 2011, 6:10AM 6 Comments

by FMA

It's been great to see how well engaged roadshow audiences have been. Most seem to be fairly well sorted in terms of licence application readiness and are putting the finishing touches on their Adviser Business Statements or Set C files.  They are also getting stuck into preparing for the new disclosure requirements. It's therefore no surprise that these advisers are now thinking about what happens next in a post-licensing world. When will the regulator visit me? Will they just arrive on my doorstep unannounced?  How much of my time will they take? What will they want to look at? Some thoughts on that: The Commission may contact an adviser any time. Several factors will influence who we choose to target, such as acting on intelligence or investigating a complaint, a risk assessment, investigating a particular theme (perhaps Kiwisaver sales practices for example) or simply knowledge building about this industry. So a visit by the regulator won't necessarily signal a problem. This is a newly regulated industry. We need to focus on the areas where there's the risk of greatest harm, ideally picking them up early. To do that we have to correctly identify the main problems through a combination of intelligence gathering, signals picked up from complaints received and the fact-finding we do through our monitoring programme. In most cases you'll get good notice of a visit and generally the precursor will be a request to send us your ABS. So the first thing you can do to reduce the likelihood of a visit or a request for more information is to adequately address the matters we ask for in your ABS. The ABS is about you the individual, how you have thought about your obligations under the law, the Code and the Terms and Conditions and how you will comply.  We're more interested in knowing about your advice process and what you personally do than the business itself. Make sure you read the AFA ABS Guide to help. We've updated the tables in the back to reflect the final Code's 18 standards and the standard terms and conditions. What we do once we're in your office depends on the reason for our visit. We may be concerned about a particular aspect of an adviser's compliance. We may wish to verify that an adviser is doing what their ABS says they're doing. Or it may be a discussion about an industry-wide theme we're interested in understanding better. We understand this is new territory for everyone. Those who behave like professionals can expect to be treated as such. The Commission will be helpful towards those who take compliance seriously and are clearly on board with the spirit of the law for the benefit of their clients.
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Comments from our readers

On 11 March 2011 at 10:38 am Murray Weatherston said:
Hi Mel

I note in your piece above the following

"We need to focus on the areas where there’s the risk of greatest harm, ideally picking them up early. To do that we have to correctly identify the main problems..."

My question is does the Commission have any view today as to where those main problem areas are likely to be?


PS Thanks for your answer to my earlier question about Reserve EDRS levy. I don't agree with having to pay the levy but recognise it is part of the admission ticket price to being able to participate in the game.
On 11 March 2011 at 11:40 am trainwreck said:
Funny thing is my doctor, lawyer and accountant claim to be professionals, but do not seem to have an ABS requirement. Unprovoked, random inspections seem to be lacking too. Come to thing about it, their detailed thoughts, justifications and alternatives are not given to me in a phone book sized report. Thank goodness for that, imagine the bill. I would have to think twice before seeking their advice if they operated under such draconian requirements.
On 17 March 2011 at 9:22 am Mel Hewitson said:
In response to Murray's question, yes, there are already some themes we want to investigate, assess and then prioritise for closer attention. These themes range from already widely aired problems to issues we pick up from QFE and AFA licence assessment work, complaints received and information from advisers and other sources. We're finding that professionals are generally willing to share their thoughts on what needs to change and where practices are occuring that risk bringing their industry into disrepute. (AFAs have whistleblower protection in the Act.) These are valuable insights for us when information is reliable and given in good faith. Of course the other side of the coin is about behaviours we want to see more of. We look forward to sharing our views and expectations regarding both good and bad practice as the regime develops.
On 17 March 2011 at 5:56 pm just wondering said:
I got a call today from an ex client about the current low ball share offers. In the past I could have just answered the question. These days there are disclosure statements, 6 step processes, written reports, waiver documents, disclaimers.....after a brief talk we decided that it would be best just to give oral non specific class advice at no charge to the enquirer. They were puzzled that I could not answer their question without paperwork and a big bill. Was there another way of helping them and remaining compliant? Thanks
On 22 March 2011 at 7:42 am Peter Lee said:
This would seem to be covered by the 'class advice' provisos. If you're providing a general comment, that's not personalised to that particular person, then you are not providing "personalised advice for a retail client". So there's no need for reports and documents and so on - provided you make it plain that yoru comments are general in nature only.

In this particular case I would imagine you'd be commenting along the lines of "check the latest share price in the paper, do an internet search on the company to see what latest news reports are saying" and so on. You are not saying yes or no. Think of it as the sort of thing t's the sort of thing you'd say in an article.

Of course, if your ex-client now wants you to advise them - they (and you) are in a different situation!
On 22 March 2011 at 9:59 am just wondering said:
Thanks Peter. Your views appear to be the same as mine - despite both parties knowing that I knew the answer, I could not answer the question. We have to waffle around in non specifics, or if we are lucky find a weblink or article to refer them to - non specifically of course. All parties would be better off if we were just allowed to answer the question without all the "process" There are many times when the full financial planning service is completely inappropriate. Not helping the people seems to breach code standard one, helping them without paperwork breaches code standard 12 et al.
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