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Where are the regulators when you need them?

There are some things I don't get about the newly regulated world at the moment. One is the story we ran yesterday where to advisers with dishonesty convictions recently in Australia are allowed to be registered advisers.

Tuesday, September 6th 2011, 7:41PM 13 Comments

by Philip Macalister

We are still trying to get to the bottom of this and will report in again when we know where regulators sit on this.

Meanwhile the organisation they worked for reference checked them using Google and was happy with what he found.

I plugged their names into the search engine and the top results were ones which would make anyone wary about employing these people in a role like this.

The second is a speech Simon Power made a little while ago at the loan sharks conference.

While we didn't attend the conference there was some interesting research which showed how many low income earners were being ripped off by loan sharks.

The stories are truly ones of woe. Ones where unscrupulous operators prey on the vulnerable.

These are people who are being ripped off daily. These are people who are having their lives ruined.

If there was an area of financial services which needed cleaning up it is the loan sharks. It's not the financial planners and fund managers.

Yet, Power disclosed that between 35 and 40% of third-tier lenders are not on the Financial Service Providers Register, as they are required to be by law.

It is disgraceful that the good end of the financial services market is being maligned and put through significant regulatory hoops and hurdles, but this crowd isn't. Yet the government knows they are out there breaking the law.

Here's what Power said: "It's clear to me that this fast-growing industry fuelled by advertising focused on ease, speed, and normality of third-tier loans all aimed at those on low incomes and beneficiaries is a recipe for, if not disaster, then danger.

"Add in the fact that sole lenders are not complying with regulations and do not belong to a dispute resolution scheme and you know we have a lot of work to do.

"I know that the Registrar of Financial Service Providers is taking a keen interest in this aspect," Power said

Surely more than a keen interest (and a gabfest) is required here.

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Comments from our readers

On 7 September 2011 at 7:48 am Independent Observer said:
Whilst early days - the Regulators appear clumsy.

On the one hand, they are disenfranchising themselves from the very community whom they regulate, through a poorly considered ‘cowboy’ scare-mongering campaign (apparently soon to be followed up with a tasteless Christchurch red-zone recipient campaign).

On the other hand they appear under-prepared in satisfying the basics in regulating the industry. This includes a poor understanding of how the industry works, poor communication with industry participants, and an apparent lack of vision as too how the industry could/should operate.

I have often found that a more collaborative approach yields a better outcome, with errors and oversights being quickly resolved or forgiven. Perhaps the Regulator should recalibrate their current “all are evil” philosophy and attempt to work alongside those participants who actually care about the industry that they operate within.
On 7 September 2011 at 9:10 am btw said:
Good article. This isn't new however. I can remember 5 yrs ago a Reserve Bank official boasting about how lightly regulated the NZ financial markets were. It is an attitude that prevails on both sides, through all levels, and has consequences accordingly. NZ is well known internationally as a jurisdiction of poor financial regulation. One can set up an entire offshore banking operation in this country for $80 (the company registration fee) without ever putting foot here. Govt. is aware of this. Media have highlighted the arms smuggling situation. Again, NZ govt. response is to fine a resident secretary for a clerical administrative offence. There are many more examples.
However, you can't blame govt. The main blame, in my opinion, rests with an irresponsible private sector that is primarily about short term profits and cutting corners, and lobbying govt to protect these interests. I'm generalising of course, but the unregistered loan sharks are a case in point. To compound the problem, valuable govt. resource is being wasted on identifying and pursuing these guys just to get them to the start line!
Control rests with private sector. If we want proper reform and to rebuild public confidence we can do so. But that requires accountability and investment. Until we do that the investing public will continue to spurn the financial markets and we will all suffer.
On 7 September 2011 at 11:33 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, so this is obviously not where the problem is.

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???
Apparently the reason for this is they are a big group and can be monitored.
I personally belong to NZ's largest aggregation group (at least 5 times larger than the above)so we should have the same rights???

We are monitored as this is what the FMA shold be doing or maybe PAA, NZMBA, FPIA, etc should be used for.

Time and time again I see banks selling short-form life products which are not always the best for clients.
I also see the y generation self sourcing life cover online because they don't want to spend time with a Professional Adviser,
I personally feel this is a recipe for disaster when it comes to claim time.

Why aren't all the loan Sharks Registered as this was always where the problem was in the first place

Something not quite right here.
On 7 September 2011 at 3:00 pm Forthright said:
I wonder when the Justice Minister Simon Power will wake up and realise the FMA is good at talking the talk but as effective as the Sheriff of Eketahuna when it comes to walking the walk and stopping the rorts and corruption still entrenched in the system.

I am referring to the millions of dollars in commissions and trails on category 1 products being paid to non-authorised advisers. The FMA should have put a full stop to this on 1/7/11. But there is plenty of evidence the devious advisers keep lining their pockets without having a ticket in the game. These advisers claim the payments are for a class service or simple delivering a statement of account balance to the client. The product supplier paying the commissions and trails is complicit in this conspiracy by allowing the payments to be made without any checking what so ever.

It also appears the FMA, by their actions are prepared to accept this along with their similar acceptance of convicted criminals as registered or authorised advisers.

There are a number of good category 1 product supplier citizens, who have insisted Advisers prove they are authorised to provide the service before continuing to pay commissions and trial post 1/7/11.

I look forward to the FMA walking the walk and proactively weeding out these sneaks and cheats.
On 8 September 2011 at 10:27 am Tony Vidler said:
My concern at present as the Market Surveillance begins with its "Monitoring Review" process for AFA's is the (in my view unreasonable) requirement for the soon-to-be-inspected-AFA to make themselves available for such a large proportion of a given working week at reasonably short notice.

The introductory letter I sighted advised that the "the visit should take between one and one and a half days during normal business hours".

I don't know about anyone else, but if I suddenly had to find a "spare" 1.5 days in the next fortnight it would involve a heck of a lot of re-shuffling of the stuff that generates the dough to pay the costs of complying, inconvenience to a number of other people called "clients", and also result in me trying to balance the conflicting time demands by working extra hours into the evenings and weekend for a week or so, resulting in me losing that thing called "having a life outside of work".

Far better one would have thought to suggest a process that is deployed in digestible chunks for a business person, such as having an introductory visit that takes 2 hours, and perhaps the FMA only covers off a part of their monitoring activity. By all means come back in a couple of weeks for another hour or 2 and then tell me what you want to go over next....but asking me to block off perhaps 30% of a working week at relatively short notice? Probably followed by further significant chunks required to be set aside as the Monitoring undoubtedly uncovers "concerns" that require rectifying and re-monitoring....probably at even shorter notice....That is just a headache and guaranteed to get everyone off on the wrong foot.

The headache is not the monitoring itself, it is the disruption caused by trying to schedule it in such a big chunk at the outset. There needs to be a recognition that the majority of AFA's have reasonably heavy workloads that involve a large number of other people's diaries, so there has to be a process that disrupts as few lives as possible in manageable allotments.
On 8 September 2011 at 5:25 pm Simon said:
"If there was an area of financial services which needed cleaning up it is the loan sharks. It’s not the financial planners and fund managers"

Well said Phil. A totally accurate statement of the current state of affairs for the financial services industry in New Zealand. What’s the point of regulating the “honest” operators if the “real crooks” can just continue to trade? What a bloody joke. The FMA instead of disrupting honest advisers and their businesses should be focussing on the loan sharks as a priority at present. I would have thought that this would be a logical and “smart” approach to policing the industry? We kept hearing from the FMA that those individuals who remained “unregistered” after 1st July would be in the authority’s cross hairs so let’s see some action to back that statement up! The FMA will fast lose all credibility if it continues this lacklustre start to protecting the consumer (the whole point of regulation in the first place)

To the FMA - Get your priorities in order guys, this is not rocket science!!
On 9 September 2011 at 2:48 pm Curious said:
And another thing! What about the precious metal dealers and some of the sales approaches being used. I recently heard a guy on Danny Watsons show on Newstalk ZB making claims such as "going through the roof", "the sky is the limit", "going into orbit", could go to $100 per ounce(silver), and " you could make 50, 80 or even 100% in the next 2-3 months".
The guy was promoting speculative leveraged gold and silver investments to mum and dad investors on national radio and risk wasn't even mentioned!
On 9 September 2011 at 2:54 pm Curious said:
p.s. NZ herald has an article on bullion dealers in todays paper.
On 9 September 2011 at 4:02 pm traveller said:
Curious is right. Intelligent investors should have been in gold at least five years ago and by now should be starting to take some profit and downsize their exposure. But as seen with dot.coms, finance companies etc the average man in the street will be sucked in and then complain when things go wrong.
On 9 September 2011 at 6:37 pm Abouttime said:
Should have been easy scores for any awake regulator. Better for the public than checking to see if all AFA s have paperwork similar to what Moneymangars and Vestar gave their clients. Always easier for the sheriff to round up the woman and children than the gunslingers.
On 12 September 2011 at 8:16 pm w k said:
@abouttime: do you think it is better to take on a few with deep pockets who can hire QCs to take you on all the way to court, and you are not guaranteed a successful prosecution, or for you to take on many minnows who have not much or no money, and have more than 90% success rate?
On 13 September 2011 at 9:53 am denis said:
Related to Curious' point, most days I hear a breathless radio ad promising the earth re Gold. "They" don't want you know about it. It's now "your turn" to make serious money, etc. I know that these people have some form of exemption from the regs and it really shows.

Property developers advertise in a conversational way, with a faux-presenter - who agrees wholeheartedly that residential property investments are great. I heard one yesterday about a development that hasn't been built yet - "Now - how would you feel if someone gave you half their paypacket every payday - and said, 'here you are, do what you want with it'. It's called rent. Wouldn't that be great? Well, that can happen to you - for just $1,000 down. It's a free call!"

Buried in there somewhere (I think) was a rushed disclaimer but the whole tone glosses over the risk.

I have nothing against ads for precious metal investing and property, but they understate the risk and, which is worse, give the impression that there is no risk at all.
On 13 September 2011 at 10:32 am Curious said:
I agree Denis I heard a similar property related advertisement yesterday.
The point as far as I am concerned is that these ads are potentially very misleading and while I also have nothing against precious metal or property investing the playing field should be level.
Commenting is closed



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