FMA confirms mystery shopping plans

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The Financial Markets Authority should avoid "naming and shaming" advisers involved in its planned mystery shopping programme, the Institute of Financial Advisers says.

Tuesday, February 28th 2012, 6:30AM 6 Comments

by Niko Kloeten

The FMA has confirmed it plans to use mystery shopping as part of its role of regulating the financial advice industry, although it is tight-lipped over how and when it will be conducted and on what parts of the industry.

"This is what we can say about mystery shopping: we intend to use mystery shopping from time to time; mystery shopping is used by regulators around the world; we're not doing it at present," FMA spokesman Nick Stride said.

IFA president Nigel Tate said the institute had been in discussions with the FMA about how to conduct mystery shopping.

He said the institute's recommendations were in line with those of Dr Michael Mintrom of Auckland University, who assessed the high-profile mystery shopping survey of financial advisers by Consumer NZ in 2009, and found a number of problems with the way it was conducted.

"The Consumer study appeared to follow practice used elsewhere to assess the quality of financial advice. In reality, it did not," Dr Mintrom wrote in his report, which was commissioned by Plan B Wealth Management and Rutherford Rede, who both received poor ratings in the Consumer report.

"The study was seriously flawed. The reporting method was unethical. It probably did more harm than good for the industry. The study received partial financial support from several government agencies. Taxpayer support gave it an undeserved degree of credibility."

Tate said the IFA's position is that "Anything that is going to improve consumer confidence is a good thing; however, it really does depend on how they use what they get back.

"If they get positive stuff back that should be promoted; if they find negative stuff they should give them [advisers] the opportunity to respond.  That was the disappointing thing last time [with Consumer], that there was no right of reply."

He said the FMA shouldn't publicly "name and shame" the advisers who get mystery-shopped, saying business "plummeted" at some of the businesses that received bad reviews in the Consumer survey.

"I think withholding the names of the practices involved would be a positive thing.  It would be interesting to know whether they are independent or operating under a QFE and things like that, but not saying 'John Smith from John Smith Finances' - there's no validity in pumping out that name to the public."

Tate also noted that the FMA is already doing assessments of financial advisory practices around the country.

"Do they need to do a mystery shop when they're already doing the surveys?  What I'd be interested to see is if they mystery shop the ones they've assessed.  One of the things that identifies a professional is that do the right thing when no-one is looking."

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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