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AFA monitoring reveals some gaps

Problems remain relating to AFAs' disclosure, record-keeping and the suitability of personalised services, the Financial Markets Authority says.

Friday, March 21st 2014, 5:55AM 4 Comments

by Susan Edmunds

It has released its AFA monitoring report covering the second half of last year, when it focused on advisers in Hamilton and Dunedin.

Thirty-two adviser business statements were reviewed and 12 advisers were visited.

The FMA said it found not all advisers’ disclosure documents followed the required format.

“In particular, there were a number of instances where AFAs were not detailing a reasonable estimate of client specific fees …Instead, a range of fees were documented.”

There were concerns about AFAs not supplying enough detail in their ABS about preferential terms with providers and inadequate disclosure of complaints.

The FMA said there was a lack of clarity in how AFAs established an asset allocation for a portfolio based on a client’s risk profile questionnaire.

There were also potential breaches relating to advisers not having adequate understanding of clients’ financial situations. Not all were offering regular reviews or taking reasonable steps to ensure clients were aware of the risks and benefits of following their advice.

“We expect that advisers should ensure that the key issues relevant to that particular client are outlined,” the report said.

It said some of these potential breaches could have been due to problems with record-keeping.

The FMA also looked at advisers dealing with UK pension transfers.  It reviewed the advice given by four advisers and said it was worried they were giving class advice when the situation was too complex.

Pension transfer advisers needed to analyse the client’s existing scheme compared to what they could get in New Zealand, taking into account the client’s own situation, the FMA said.

The report said the FMA had talked to 19 AFAs about their complaints-handling procedures. All had complied with the minimum requirements but some had not recorded any instances in the last 12 months where a client had expressed dissatisfaction.

“In future monitoring, where an AFA has no recorded complaints in the last 12 months, we will probe further to make sure the AFA fully understands the definition of a complaint, and question whether the complaints log is a true reflection of the case.”

It said the new code should be effective from the second half of this year. Its focus then would be on helping advisers transition to complying with it.

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Comments from our readers

On 21 March 2014 at 9:20 am Derek Keith said:
So the FMA will investigate further when they find that no one has complained in the last 12 months? So do we avoid this by just making up a complaint to keep them happy. Extraordinary situation to be investigated because your clients have nothing to complain about.
On 21 March 2014 at 4:39 pm 6ftndr said:
and this comes as a surprise......this is what you get when over half of them were just given AFA status!
On 23 March 2014 at 6:14 pm Brent sheather said:
Common sense tells you that the more elaborate an advisers complaints procedures are the more wary potential clients should be.
On 25 March 2014 at 9:56 am Dirty Harry said:
The nature of this business is to go against the grain - the common wisdom. We say 'buy' when the herd is selling. We talk about death and cancer with healthy people. If you truly have gone a whole year without an entry in your register, then you should be worried because there will be people out there who have concerns, and if they are not talking to you they are talking to somebody!

Winston Churchill said "Success consists of going from failure to failure without loss of enthusiasm."

So, according to Churchill, if you are a busy and successful adviser, you will make mistakes, maybe annoy people from time to time. According to the FMA you should keep track of that. So no, Derek, you don't need to make stuff up, just pay attention to, and record, your client feedback. Solicit it even. Don’t wait for a letter of complaint or something on a lawyer's letterhead. Be proactive. Identify and resolve concerns (you probably already are, but just need to re-define what you think should go into the register) and record what happened.

One more quote: "If you're not making mistakes, then you're not doing anything. I'm positive that a doer makes mistakes.” - John Wooden.

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