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AFA Monitoring & Registration Spot Checks Kick Off

Monday, May 9th 2011, 5:00AM 23 Comments

by FMA

This week we’ll be asking some Authorised Financial Advisers to submit their Adviser Business Statement (ABS). We will select a small number of AFAs from across the country (excluding the Canterbury region) and they’ll have seven working days to get their ABS to us. We will then review the ABS to check the systems and procedures it describes help ensure the adviser is conducting their business in a professional and compliant way. In particular we will be looking for information that describes the advice process they have in place. In some cases we may contact the adviser to clarify points or ask for additional information. We expect to provide feedback to individuals within 15 working days. The possible outcomes include: • No further review is required at this stage. • Further information may be required to help us understand the adviser’s approach. We may or may not ask the adviser to submit a revised ABS it to us once changes have been made. • A formal interview by phone. • A visit to the adviser to review their services and the outcome for customers and to ensure they’re operating in accordance with their ABS. Advisers in this situation will be provided with further details about what to expect from a visit. This is an excellent opportunity for advisers selected to receive feedback on their ABS. If there are themes for ABS improvement that emerge after the first few months of reviews, we are likely to issue hints and tips to all AFAs. Going forward, we may contact the adviser again at any time. In addition to periodic checks, we may respond to information received about their business, or investigate a particular theme across the industry. We may also conduct short surveys on a particular topic. Monitoring reviews will help encourage high standards of professionalism in the industry. If we do encounter a problem we will generally work directly with the adviser to help them meet the required standard. However we may also take action when standards fall below the required level. By the way, in addition to calling for some adviser ABSs, we are running some spot checks on advisers to ensure they are registered. Mel Hewitson Director Financial Adviser Regulation
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Comments from our readers

On 9 May 2011 at 12:25 pm Confused advisor said:
Those of us who have completed Standard Set C as part of the AFA process (and not come in thru the side door because of CFP or NZX exemptions), have just spent many weeks collating information for ETITO (acting on behalf of the FMA)to prove that our advice process complies with the "Six Step Process", the Financial Markets Act and the Code. Now we are being told the FMA wants us to prove it all over again via an ABS. Does one hand know what the other is doing over there ?
On 9 May 2011 at 2:39 pm Confused Advisor said:
Those of us who have completed Standard Set C as part of the AFA process (and not come in thru the side door because of CFP or NZX exemptions), have just spent many weeks collating information for ETITO (acting on behalf of the FMA) to prove that our advice process complies with the “Six Step Process”, the Financial Markets Act and the Code. Now we are being told the FMA wants us to prove it all over again via an ABS. Does one hand know what the other is doing over there ?
On 10 May 2011 at 9:30 am Wise One said:
Confused advisor is confused. Std set C is part of what is required to prove your competency so you can get your National Cert in Financial Services, a base requirement if you want to be an AFA.
CFPs, NZX, Chartered accts etc have an exemption as they have been deemed as already having met competency for that standard through their various training etc.
Std set C is completely seperate to your Adviser Business Statement, and its been well publicised that the first thing the FMA will want to look at is your ABS, as its completeness (or lack thereof) will determine who they will be looking to visit first.

All AFAs (regardless of previous designations) will have an ABS, and now that we are all regulated, we will all be subject to ABS checks.
On 10 May 2011 at 10:47 am Forthright said:
Obviously ‘Wise One’ you haven’t completed Standard Set C, otherwise you would be better informed.

As part of the Standard Set C assessment process I was required to furnish a copy of my ABS statement in support of my main body of evidence. I would imagine the Assessors would not give me a Standard Set C pass mark if my ABS Statement was not consistent with the body of evidence I submitted or the way I described how I ran my business.

Moreover I now feel better than confident that my ABS would pass an FMA audit.
On 10 May 2011 at 12:38 pm Bazza said:
RFA's can do Standard Set C and aren't required to have an ABS. So interesting that the Industry Training Organisation requested it as part of your Standard Set C process.

Until the FMA start making findings we will not really know what will be acceptable and what won't be, but I you can be assured not having an ABS at all would be bad!
On 10 May 2011 at 2:07 pm Confused advisor said:
My point was that is achieving Standard Set C, the advisor proved to ETITO (and thru them the FMA)that their advice process was sound. But now we have a representative from the FMA - Mel H - telling up that:

"In particular we will be looking for information that describes the advice process they have in place."

Haven't those who have completed SSC already proven to ETITO/FMA that their "advice process" meets the requirements of the six step process,the FAA and the Code ? That was the whole point !!

So why is the FMA looking "in particular" to an advisor's ABS to prove that all over again ?

By all means the FMA should do this with those CFP's and NZX members who weren't assessed via SSC, but surely they have already assessed the rest of us enough already .........
On 11 May 2011 at 9:54 am Dave said:
SSC is based upon the unit standards created by ETITO and the FMA will look to an advisers professional practice to determine whether that practice meets the criteris set by those unit standards. The point where the adviser demonstrates to the regulator that they meet SSC is through their ABS, which is a reflection of the AFAs operating environment, including processes and controls. Those of us with CFP and CLU have already demonstrated a level of professional practice that aligns with SSC requirements, so it is not a 'back door' as the obviously confused advisor states. This is the reality guys and gals. The FMA is a regulator and their job is to regulate - providing monitoring and assurance oversight of advisor activities to ensure that the standards set by the regulation, legislation and the code are upheld.No point complaining about this as this is the new landscape.
On 11 May 2011 at 10:48 am Confused advisor said:
Dave, you haven't completed SSC so you don't know what is involved. To say "the point where the advisor demonstrates to the regulator they meet SSC is thru their ABS" is ridiculous. SSC candidates spend many hours collating information that proves to ETITO (and thru them the FMA) that their advice process is in accordance with the Six Step Process, the FAA and the Code. That's the whole point of doing it ??

And yet now we have the FAA saying that "in particular" they want to see advisor's ABS to check on the "advice process". Talk about doubling up ........
On 11 May 2011 at 10:58 am Mel Hewitson said:
You may recall Ross Butler, Chair of the Code Committee saying that getting the ticket to the game is just the beginning and it's how you play the game that then counts. Once you're an AFA and get close to the end of your initial 5 year (typical term) licence, FMA will consider your application for licence renewal. Before FMA can renew your licence, we have a statutory responsibility to be satisfied that you have actually complied with the Act, the terms & conditions and the Code during the five years since your initial licence was granted.

Linking that to the ABS assessment we do, the ABS and use of the term 'advice process' is much broader than Set C. The ABS is about how you have thought about and understood the Act, the Code and the Terms & Conditions and how you apply that understanding to your advice practice.

Regarding any difference between those who have passed Set C and those who didn't because of alternative qualifications, this kind of thing could inform our risk assessment and help us to decide who to prioritise for monitoring. Many of those who didn't have to sit Set C will find we will be auditing their client files too to make sure they are compliant with the new standards.

I hope that's helpful context for the monitoring work we'll be doing.
On 11 May 2011 at 2:05 pm Amused said:
Do AFA's actually have the time left in their businesses now to see clients (and look after their needs) or is the adviser's whole day just spent keeping the regulators happy?
On 11 May 2011 at 3:03 pm Confused advisor said:
Thanks for coming on and discussing this Mel....

I can fully understand why, before an AFA's license is renewed, an assessment will need to be carried out, including a review of the advisor's ABS. But that is in 5 *years* time: it seems to me that what you said in your initial blog entry is that some AFA's can expect their ABS's to be reviewed virtually as soon as they are authorised: that could be perhaps 5 *days* time in some instances. So I come back to my point: what aspects of the "advice process" that were not covered (in exhaustive detail)in Standard Set C are expected to be shown in the ABS ? Or did you make a mistake in saying that "in particular" FMA will be looking for information on the advice process in an ABS? Why don't you just have a look at each AFA's Standard Set C file ? There will be a lot more information on their advice process than can be fitted into a 7/15 page ABS ...........
On 11 May 2011 at 6:02 pm dave said:
Confused adviser - I have completed over 15 SSC assessments, so I do know what I am talking about. The ABS sets out the framework that you operate in. This is where you demonstrate that your operating environment satisfies the regulators ongoing expectations.
On 12 May 2011 at 3:46 pm Alison said:
I must admit I find myself agreeing with 'Concerned Advisor' on this one. If Dave is an ETITO assessor, he would know Standard Set C (SSC) is all about the advisor proving that their advice process is compliant with best practice, including the FAA and the Code. So why the FMA, "in particular" will be looking at an advisor's ABS "for information that describes the advice process" is a bit of a mystery when all they have to do is look at the evidence submitted by the advisor in SSC. Can't they be bothered ? Mel mentioned the FMA might show particular interest in AFA's who didn't have to sit SSC; to me that seems the best starting point: I bet very few of the NZX members who slipped in the back door via exemption from SSC have ever written a financial plan; (but what a great lobbying job the NZX did to the government in allowing them to get away with it.....)
On 12 May 2011 at 6:48 pm brent sheather said:
i agree with alison mel should focus her abs efforts on all those advisers who recommended finance co debentures or feltex and slipped in the back guess is that their financial plans are little different given that commission is still the name of the game.
On 13 May 2011 at 8:47 am Phil said:
I also seem to remember including my business statement when applying to the Sec Com to become an AFA. So if I'm approved one week as an AFA and the next week they come asking for my ABS, what's the point?? Nothing will have changed - chase those as mentioned above who have slipped in the back door. Like many others I'm sooooo over the regulation hoops we're jumping though at present - let's get on and do some work with our clients
On 13 May 2011 at 11:03 am Mark said:
I beleive the point is as Mel pointed out, becoming an AFA is only your 'ticket to the game'. Yes, you have proven you have the qulaifications and advice processes etc to be able to competently practice as an AFA, based on client files that are in the past. That doesn't however prove that once your are an AFA that you continue to operate to those standards.

The point of the FMA checks is to look at your ABS which tells them that 'this is how I operate', and then check to see if you are actually operating they way your ABS says you are! This may mean looking at client files/evidence of your work practices completed AFTER you became an AFA!

Another point, while some may have provided their ABS as part of their standard set C evidence, that is just one form of evidence that can be provided to evidence meeting one of parts of the standards included in standard set C, other documents could have also been supplied, and in fact I suspect very few candidates completing standard set C did provide a copy of their ABS.
On 13 May 2011 at 11:51 am Giles Thorman said:
Isn't it wonderful to see that after two years EVERYONE is so clear about what is required. The FMA effectively have the power to stop any of us from earning a living; I do not have a problem with that per se IF it at long last removes some of the Charlatans from this Industry. However what I do have a problem with is being judged on something that no-one can explain clearly and concisely EXACTLY what is required.
As Phil above says, I am also soooooooooooooo over regulation, mainly as the rules keep changing and the huge time it has and will continue to take out of my working week. There is then also the matter of the fee's I need to pay to various bodies I need to be a member of, increasing costs of PI (you wait their will be some claims from Canterbury) and also the slight matter of the worst recession in 60 plus years.
In the background there always seems to be someone "warning" Brokers against some potential infringement they could possibly commit..... if they want to buy their book/attend their 3 day course/go to their seminar....... all will be revealed.
I wonder how many future stress claims will be able to trace their commencement back to this shambles.
On 13 May 2011 at 2:50 pm Paul said:
Describing CFP, CLU NZX Diplomas, Massey Diplomas and Waikato Diplomas as a back door to escaping SSC sounds a bit strange. I would have thought that Advisers who put themselves through such higher qualifications in advance of any legal requirement to do so were entering voluntarily by the front door. Those who didn't bother to raise their game until forced by legislation to do so are the ones who should be investigated by the FMA first as they appear reluctant to demonstrate their professionalism.
On 13 May 2011 at 4:49 pm brent sheather said:
Paul, two things spring to mind in respect of your post,firstly how many CFP and NZX advisers got grandfathered in without doing any study whatsover and secondly if so many advisers have had the benefit of this great education from Massey and Waikato how the hell did we end up with so many giving so much bad advice?
My experience of the diplomas is that they are frequently teaching the wrong stuff and where they manage to get it right the reality of the marketplace means that the graduates ignore it or risk losing there jobs. I'm self employed, thank you god.
On 14 May 2011 at 10:55 am Amused said:
Excellent comment Giles Thorman. I am sure the majority of advisers in New Zealand are thinking along exactly the same lines about regulation and how it has been implemented to date. Regulation of the financial services industry appears to be evolving into a win fall for bureaucrats rather than been focused primarily on the consumer as it was originally intended!
On 15 May 2011 at 4:53 pm Alison said:
Both Paul and Brett are ill-informed. The Massey/Waikato Diplomas are not an alternative qualification for Standard Set C. So only CFPs and NZX advisors have slipped in thru the side door. A case can be made for CFPs but the NZX advisor free pass can only be put down to effective lobblying on part of the NZX to a gullible Code Committee. Hopefully Mel and her team will see thru this sham and single them out in her investigation of AFAs.

But even in their case it is ridiculous that AFA's are going to be hounded by the FMA again only a short time after their authorisation. I can only put this down to the fact that the inspectors were hired prematurely and, rather than have them sitting around twiddling their thumbs, the FMA wants them out there showing they are "doing something"
On 15 May 2011 at 5:19 pm brent sheather said:
i have seen many financial plans where finance company debentures ostensibly constitute the low risk component of a balanced portfolio.these are invariably prepared by cfps so my guess is that mel and her team will be kept particularly busy by the chartered financial planning thing in their favour is of course the fact that the number of bad investment instruments available for distribution is at a low point but im sure that wont last for long.the question is from what direction will the next disaster come ?
On 16 May 2011 at 11:50 am Forthright said:
If Mel’s Labradors can stop bad investment instruments from getting to the point of distribution and infiltration into investors portfolios, then I don’t mind a visit from the FMA and a few dog hairs being left on my office carpet.

I have personally taken a positive approach to getting my ticket to the game and learning the new rules for playing the game. I also expect the rules to change from time to time and be tasked with striving for better professional outcomes for the rest of my career. If it takes a Labrador visit and suffering a whack with its tail, pee on my shoe, a bite to the ankle or a lick to the hand to point out whether I am playing the game fairly, then I don’t mind.
Commenting is closed



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