Submission slams FMA

SiFA has entered a searing submission in response to the Financial Advisers Act review issues paper.

Friday, August 7th 2015, 6:00AM 11 Comments

by Susan Edmunds

In it, Robert Oddy and Murray Weatherston say the financial advice regulation regime has limited access to advice, guidance to advisers has been at times incomprehensible, the FMA has too much control over the Code Committee, and that treatment of QFEs has been unfair.

They want regulation rewritten to clearly focus on consumers and make it easier for them to access advice.

They say regulation has driven many independent advisers out of the market or into the hands of QFEs and more are likely to follow. Many feel QFE advisers unfairly get an easier time from regulators.

But Murray and Weatherston say the lack of information on how to deal with clients who do not want a full investment plan is one of the industry's biggest problems.

“AFAs are willingly compliant with regulatory requirements but the confusion created by the numerous changes, and sometimes incomprehensible guidance, has caused some advisers to mitigate potential compliance risks by deselecting certain types of consumer and reducing the type of advice being offered,” their submission says.

“The FMA guidance in respect of limited advice and KiwiSaver has created such confusion amongst AFAs that some now refuse to provide advice for either… The reality is that because of the way the guidance is interpreted, almost all advisers think it is too dangerous (from a possible FMA monitoring viewpoint) to offer discrete advice and so have completely pulled away from offering it. Who loses? The consumer. Who are the regulations supposed to benefit – isn’t it the consumer?”

The confusion has allowed an industry of “questionable competence” to develop, purporting to offer compliance support to advisers, they argue.

“Given its regulatory function, it had been anticipated that FMA guidance would ameliorate such difficulties concisely, effectively, and with clarity. Regrettably this has not been the case.”

They also want the FMA to have less influence on the Code Committee, which administers advisers' code of conduct.

“We consider that the Code Committee is overly controlled by FMA and suggest that consideration is given to secretariat and legal support being provided independent of FMA. We do not think that the FMA should have any ability to make changes to the code of its own motion. The draft amended code should be proffered to MBIE who then pass it on to the Minister. FMA should have the ability to submit on code changes just like everyone else.”

They suggest a system of financial advisers and product information specialists, instead of the current QFE, RFA and AFA designations. Product information specialists would be required to make it clear they were salespeople not giving full advice.

SiFA says it is time for the Government to consider whether it wants an independent financial advice industry to exist in New Zealand.

If it does, changes will have to be made to ease the regulatory costs, confusion and uncertainty faced by AFAs. “We have an opportunity to make regulation simple for consumers and AFAs alike – and we need to grasp it with both hands," Oddy and Weatherston say.

Tags: Financial Advisers Act SiFA

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Comments from our readers

On 7 August 2015 at 7:31 am Ernie said:
Perhaps another perspective for the rule-makers to consider is what the industry would look like if the banks were to stop providing wealth management services. How would the consumer then get access to financial advice (non-aligned or otherwise). It’s worth noting that banks remain engaged in the wealth management industry for the primary benefit of their shareholders. Adjustments to tier 1 capital ratios (or better areas to invest in) can quickly change their commitment to the dispensing of financial advice.
On 7 August 2015 at 8:33 am Charity said:
I totally agree with Messrs Oddy and Weatherston. The Code is written as a principles based document. AFAs have struggled to understand what FMA requires in actual practice to meet some of those principles. Rather than being clear about what it wants, FMA's answer has been to send out some hopeless nerd who has been the face and voice of FMA. This individual is afraid of his own shadow and refuses to provide straight answers to legitimate questions. As pointed out in the article, FMA has issued ridiculous guidance about limited advice written by FMA lawyers who have never given financial advice. There is no concept in the Code known as "limited advice". The Code clearly indicates that an adviser is not required to provide full advice to a client. Code Standard 7 provides that the AFA can set forth the scope of the advice. Code Standard 6 indicates that an AFA may only provide advice where the AFA has the competence, knowledge and skill to provide such advice. Clearly some AFAs are not licensed for all types of advice, such as an investment planning service or DIMS. The limited advice guidance is just one example of FMA not understanding financial advice and not understanding the legislation that it charged with enforcing. Not surprising given the fact that they don't have anyone in the organisation who has any appreciable experience at providing financial advice. Rather than dishing out insults to AFAs about how they are not up to scratch, FMA needs to have a serious look at their own incompetence and at the damage they are causing to the financial advisory industry.
On 7 August 2015 at 9:15 am Brent Sheather said:
Nice work Robert and Murray. No one should be surprised to hear that regulation favours the QFE’s given that most of the FMA are either ex-QFEs, pre-QFE’s or both. The Ministry of Investment Banking is obviously complicit as well.
On 7 August 2015 at 1:09 pm Graeme Tee said:
I don’t belong to SiFA but after reading this I think I should join. Murray and Robert are making a submission for all independent advisers and they are absolutely right that the Government now has to make a call on it if it wants an independent financial advisory industry. Trouble is, with all the vested interests in the established FMA bureaucracy, compliance industry and not to mention intense lobbying from QFE’s (ie banks), I doubt the Government does want any independents around, if they even care?
On 7 August 2015 at 5:23 pm Bruce Cortesi said:
Unlike many of the persons who post on this site who are not prepared to stand behind their own name,I wish to add the following comments - because I am prepared to defend what I believe. With high respects to my esteemed colleagues Robert and Murray, I wish to also say that what amuses me the most is the total apathy with Advisers who do not comment on issues that affect the broader industry because they have their heads in the sand. Many do not have any idea on what is around the corner. Irrespective whether I agree or disagree with the opinions on the issues raised, why is it that about 8000 other Advisers do not even care enough to consider the future of this industry!!!Thanks goodness for great work behind the scenes that amazing volunteer members of the truly independent Associations of this industry do.
On 7 August 2015 at 8:14 pm Realist said:
Bruce given the numbers you are talking about the vast majority must be QFE advisers. No doubt they are terrified about potentially upsetting the overachraching umbrella!
On 10 August 2015 at 11:34 am andy@themortgageshop.co.nz said:
Bruce - I also fully support you, the PAA, and Messrs Oddy and Weatherstone. However your comment about adviser apathy is a wee bit off the mark. In the 5-10 years leading up to the FAA and those soon after, these forums were flooded with adviser comments, suggestions, and recommendations. However, when they all fell on deaf ears, our desire to participate waned considerably. Most of the posts have since proven to be 90-100% correct, especially in Murray and Robert's comments. This forum could be a very useful tool in the introduction of any form of legislation or regulation, if only people read them. However, from the very outset it seemed that there was an alternative agenda - one that has clearly failed. If the lawmakers and bean-counters want a better outcome for less money, they need to start asking those at the coal-face, NOT those up the top.
Respectfully, Andy (Phillipson)
On 10 August 2015 at 12:10 pm Tony Walker said:
@ Realist - Don't assume that all QFE advisers necessarily are QFE advisers by choice. Sometimes choice is limited and outcomes delivered.
On 13 August 2015 at 11:15 am AFA Muggins said:
I agree with Graeme Tee - I am also now joining SIFA.

I have the utmost respect for Robert Oddy and Murray Weatherston.

I'm currently a member of the PAA and will remain a member - perhaps Bruce Cortesi could elaborate on what he means when he says "Many do not have any idea on what is around the corner"
On 18 August 2015 at 2:02 pm NoNoCents said:
Perhaps some of those who don't want their name to appear are scared of being attacked on the forum, or have employers who wouldn't like it.

I'd like less attacks on others and more comment that informs on these forumes. Although I do admit to getting a good laugh from some. You can rely on some to react in exactly the same way every time.

I'm no fan of the FMA as an institution but I've found the PEOPLE I've talked to there sensible and helpful, within the constraints imposed on them. They are employed to do a job under controls imposed by others, bosses, legislation ... attack the structure or the institution not the individuals.
On 25 August 2015 at 3:55 pm Aurora said:
In my opinion 2 things are certain, to work in this industry one should have some form of approved qualification in any and all areas they operate. Secondly one should also go through a vetting process for approval to operate like criminal record checks, testimonials "verified" of course and ongoing annual declaration of continued suitability among others.

At a minimum we can say our people are trained, of good standing and subject to ongoing monitoring. At the moment we can't even stand back and do this most basic test because outside of AFA there are holes all through the industry for incompetent people to stroll through.

Even professional sportsmen have to pass a fitness test before playing and at the top level drug testing. Qualification first then monitoring is the way forward for all in my humble opinion.

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