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MBIE asked: What harm are RFAs doing?

The Ministry of Business, Innovation and Employment has been asked: What problem is the Financial Advisers Act trying to fix?

Monday, March 7th 2016, 6:00AM 7 Comments

by Susan Edmunds

Robert Oddy

Industry body SiFA submitted on the review’s options paper and said while it seemed clear that MBIE wants advisers who are not authorised to be brought up to the same regulatory level as those who currently are, it is not obvious why.

Robert Oddy and Murray Weatherston wrote that there was insufficient evidence that those who were operating as RFA or QFE advisers were doing harm because of it.

“The poorest reason for raising the regulatory bar for non-investment financial advisers is because they are now regulated differently from investment advisers. Surely you should be demonstrating problems and harm before even starting to consider regulation."

They said MBIE had argued that it did not want to change the exemptions in the law for lawyers and accountants, because there was no evidence it was causing consumers harm.

“Why would you treat similar issues differently?”

They said the cost of the existing regulation to the industry had been more than $100 million and had not provided benefits near that level.

Weatherston and Oddy said: “Raising the regulatory bar for investment advisers has had some perverse outcomes. Making it harder (more paperwork; more costs to the customer) for genuine advisers to provide advice, has led to many potential investors turning to their family, friends, neighbours, tip sheets or their lawyer and accountant for advice. Perhaps all these people should be brought into the regulatory net as well?”

But they said, if it is inevitable all registered but not authorised advisers are to face increased regulation, package three of the proposed changes seemed the best option.

But they would make significant changes to what MBIE suggests, including separating the Code Committee from the FMA and have it publish guidance notes.

They would also want the Financial Advisers Disciplinary Committee to handle cases against all advisers, including those in QFEs.  “The FADC should be made completely independent of the FMA – we see a huge conflict of interest with the FMA both providing support to the committee and having the enforcement/prosecutorial role when an adviser is before the committee.”

They also rejected the idea of entity licensing, calling for individual licensing to continue.

Salespeople not providing advice should be required to give a warning they were not putting the client first but should be allowed to offer products from more than one provider, they said.

Oddy and Weatherston said it seemed likely that little would change for AFAs as a result of the review.

Tags: Financial Advisers Act SiFA

« Worry code changes slipping under radarIDS to offer complaint service »

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Comments from our readers

On 7 March 2016 at 8:51 am John Milner said:
Surely regulation has brought best practice into the lives of many advisers where it did not exist before and we start the long journey to be recognised as professionals as is in the rest of the world.

I find it a bit of a stretch that regulation has caused potential clients to turn to friends and neighbours for advice. But I totally support keeping licensing with individuals. The alternative will only give rise to new issues for the industry.

Although there are some aspects of regulation and new reporting that can be frustrating, that's all it is. Yes it has added costs but those are partially shared by my clients as it should be.
On 7 March 2016 at 12:05 pm Brent Sheather said:
With due respect, I think many of the regulators wouldn’t know best practice if it bit them on the bum … which it ultimately will do. For example, the LinkedIn website says that James Hartley has only been involved in financial market policy since 2010. Prior to that he was at the Ministry of Foreign Affairs, ffs, and prior to that was a solicitor at Chapman Tripp. No record of him having any experience of best practice whatsoever. Certainly the lack of experience explains some of the deficiencies in the Financial Markets Conduct Act … for a start.

Someone should write a book about the bungling of politicians and regulators in this space.

Brent Sheather
On 8 March 2016 at 9:51 am R1 said:
Well said Brent. I recommend we all read the chapter on regulation in John Kay's recent book, Other People's Money where he discusses how impotent and incompetent the regulators in many markets are and why they choose to be. The FMA fits right into this frame.

Regulators loaded with industry people or aspirants; politicians being massively influenced by the lobbyists of the financial industry (and their campaign funding) and some heading off to work within the industry, etc. etc. Until this sort of crappy, self-serving approach is sorted out the investing public will happily keep investing in term deposits and property and the FMA will have failed them. When will the FMA prosecute Banks and others for mis-selling their own products to the public?? And when will the FMA actively and visibly act in the best interests of the investing public?? The current draft documents from their reviews do nothing to make me believe they plan to anytime soon.

By the way, does anyone know where Kirsty Campbell, ex-head of supervision at the FMA, went to after resigning last November?
On 8 March 2016 at 11:14 am marjhutch said:
Friends and neighbours often provide a higher quality of advice than advisers with far less experience.
On 8 March 2016 at 12:51 pm Brent Sheather said:
Hi R1, she works for Catalyst Partners which surprisingly is not a fund manager, stock broker or bank so all good. Incidentally the FT reported the other day that two more senior employees of the FCA had left to join banks. One person commented that the banks were so successful in getting good regulators the chances were that the remaining employees were drongos. Let’s hope that is not the case locally.

By the way good work from the SIFA in taking the time to make the submission. How much time has been wasted making submissions on stupid legislation? Personally I have better things to do with my time.
On 9 March 2016 at 10:41 am Jeff Goldsworthy said:
Well, at least those RFA's sitting on category One Books (anecdotedly $1B in FUM) should be made to step up, or step out.

In addition, the RFA requirement for risk analysis and reporting standards should be bought up to the same that an AFA is required to present for their same Risk Advice.

The consumer should be provided with the same level of analysis and reporting irrespective of whether the advice comes from an AFA, an RFA or a QFE (Bank employee) otherwise our industry fails as a profession.
On 5 October 2018 at 6:46 pm RiskAdviser said:
While this is an old article and there’s been plenty of water under the bridge since it was written.

The question on what we are trying to solve is still a valid question that still doesn’t have a clear answer.

From my RFA perspective there certainly is harm from poorly executed advice, there is also a large portion of clients sitting without service.

We have seen that there are compliance issues within QFE’s substantially worse than the conduct of RFA’s and we’ve since seen the DSR’s and FDAC in action too.

On the whole the sledgehammer being applied to bring the industry into alignment on conduct and regulation is still somewhat heavy handed given the demonstrated levels of harm.

Dean McDougall’s comments today about the perception right or wrong from the government have merit, and should be considered in the overall scheme of things.

But to date the desk thumping by Kris on FairGo and the rest of the evidence presented to date has not demonstrated the need for the level of regulation proposed.

I have concerns in moving everyone to a QFE mark 2 compliance structure we are only going to create larger solos of poor management and process that the QFE’s have demonstrated to date create more harm for clients than it solves.

Rather by taking the lighter approach of evening the playing field in a similar style to the present AFA approach. With application of the code and educational requirements, we’re more likely to have a dynamic and client focused industry.

Presently we’re heading towards plenty of industry for compliance companies and internal focus on compliance rather than the intended outward focus of advising and servicing clients.

Which presents me with a unique business position and opportunity for advisers which ever way it goes.

Currently we will have the unintended consequence of making accessing advice for the public harder rather than easier.

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