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Brown: Advisers struggling with principles-based approach

Financial advisers are struggling with the “principles-based” approach to regulation, says the FMA’s  Sue Brown.

Wednesday, August 28th 2013, 5:39AM 4 Comments

by Susan Edmunds

Financial advisers are struggling with the “principles-based” approach to regulation, says the FMA’s  Sue Brown.Brown is now the head of innovation, strategy and engagement but had previously been tasked with overseeing advisers.

She said all advisers were expected to be governed by the principle of “client first”. But some struggled when that was not laid out in clear rules or processes that they should follow. 

She told the 9th annual securities law conference in Wellington yesterday: “They say ‘where are the rules, how do we know we’re doing that?”

Brown said advisers needed to act as professionals and put their clients first by giving them the best products for their needs, not the products that offered the best commissions. Ross Asset Management and the collapse of finance companies had taken a toll on investor confidence, she said, and if that was to be rebuilt people would need to see the market putting their customers first.

“We expect the market to operate above the bare minimum,” she said.

Too many advisers were working with a “tick the boxes” approach, she said, targeting the minimum standard.  “You should be targeting the higher standard that you want to achieve to develop a sustainable business.”

Brown said the FMA was focused on lifting real compliance. It would be more lenient on advisers who had shown they had made a sincere effort to comply and had something go wrong than it would be on advisers who made no effort to meet the requirements.

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Comments from our readers

On 28 August 2013 at 12:00 pm Fred said:
The FMA is confused and confusing. The 10 commandments is a Principles based approach. With enormously long Act, Regs, Code & 'Guidance Notes' our FMA has fore sakes principles-based in favour or highly prescriptive approach.

Clients may want only KiwiSaver advice, but the rules force a comprehensive Plan on them.
A great pity and missed opportunity. Principles Based would have been preferable and better for investors.
On 28 August 2013 at 1:04 pm Mac said:
I am getting sick of these public statements made by the FMA. Brown's message is simply that advisers are not professional or compliant. What percentage of advisers are failing to be professional? AFAs or QFEs or RFAs?

Is the informations based on adviser audits? If so how many AFAs have been audited? What percentage are not "principle based"?

Could the FMA produce some hard facts rather than their broad brush approach to denouncing all advisers as unprofessional.
On 28 August 2013 at 4:37 pm MJS said:
How about some consistency from the Regulator? When requested about 14 months ago, I supplied my ABS which was signed off as just fine. Yet last week, I was told that I was NOT compliant. Apparently, things have changed? After some 3 hours of back-and-forth with a wonk in Wellington, oh! Look! It turns out I WAS compliant after all. Sheesh....
On 29 August 2013 at 11:40 am Informed said:
The FMA also needs to act with consistency and be accountable in its own approach to its clients, financial services companies, adviser professionals and, ipso facto, the public.

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