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FAA review means advisers spend less time advising clients

Small financial advice firms who have only just finished getting their businesses in line with the current Financial Advisers Act now face a hefty bill to do it all over again.

Friday, July 22nd 2016, 5:58AM 5 Comments

by Susan Edmunds

Sue Brown

Proposed changes for the Financial Advisers Act were revealed last week, and include a new approach to licensing advice businesses and adviser compliance – although the details of this are yet to be ironed out.

Sue Brown, of law firm DLA Piper, was previously head of primary regulatory operations at the Financial Markets Authority. She praised the reforms suggested, in particular the removal of distinctions between category one and two products, class and personalised advice, and the various acronyms that had divided the adviser population.

“The proposal represents a giant step forward on the current regime with its complexities, distinctions and acronyms.”

But she said the industry had spent a lot of time and hundreds of thousands of dollars knocking itself into line with the current regime and she had concerns about how quickly it would be required to meet new rules.

“The thing that concerns me for advisers and particularly smaller operators is that they just shaped their businesses to meet the regime as they had it and now they have to do it again.”

She said it would be important that there was an adequate transition period and support from FMA and MBIE for advice businesses going through the process. She hoped the requirements would not mean too much time away from advisers' core business - time spent on adjusting the business from a regulatory perspective would mean money lost for those firms, she said.

“Every minute a financial adviser is not providing advice they are not earning money.”

The timeline is yet to be finalised but more details are expected in the next two months.

More details are also yet to come out about planned changes to the Financial Advisers Disciplinary Committee (FADC).

Although the FADC has been operating for six years, it has only dealt with a handful of cases. Brown said it had been a total failure.  She said, over the same period the FADC had been in operation, its equivalent for real estate agents had heard hundreds of cases and had dealt with issues quickly.

The FADC should be a tool to help advisers understand what was expected of them, she said, rather than performing a purely judicial function. “It could give real guidance to advisers rather than wait for litigation or serious failures.”

Tags: FADC Financial Advisers Act

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Comments from our readers

On 22 July 2016 at 7:39 am Murray Weatherston said:
Congratulations to Sue on her epiphany with respect to the smaller adviser population. It's a pity it hadn't come earlier when she was at FMA and in a position to do something about the problems she now recognises the current regime has had since inception. But as the French would say "C'est la vie."
And Sue its not "hundreds of thousands knocking itself into line". Collectively it's many tens of millions - readers might have noticed my comment on an earlier blog that on certain stated assumptions those costs might have been as much as $200 million to date.
On 22 July 2016 at 9:40 am Brent Sheather said:
I personally think it’s fortuitous that the FADC haven’t had much to do because I for one have little confidence in their determinations. In a decision made around June 2014, see report “Anything goes if you disclose”, the FADC’s thinking was confused and contradictory which is not surprising given the lack of experience and in particular lack of knowledge of what constitutes best practice.

My view is that the FADC needs to be refreshed big time.
On 22 July 2016 at 2:30 pm henry Filth said:
“Every minute a financial adviser is not providing advice they are not earning money.”


Next you'll be telling me that they're professionals who make their money from the fees they charge customers for providing advice.
On 22 July 2016 at 4:40 pm Murray Weatherston said:
There are of course other possible reasons why the FADC has not been busy
1. The AFA population has all been willing compliers (akin to no one has been speeding)
2. The "cowboys" have been run out of Dodge by the efficacy of the current regime; and
3. There never was any systemic problem to be fixed in the first place.

I have a particular affinity to 3. Regular readers will have heard me say many time "What is the problem?"
The FAAReview which has recently concluded and been adopted with indecent haste by the Minister (10 or maybe 12 calendar days from receipt of report to formal Cabinet decision will be the envy of many people waiting forever on other issues...) and which spreads the regulatory net to another 5000 or so financial advisers in my view suffers from the same defects.
(a) they haven't defined the problem
(b) they haven't analysed all the possible ways to handle the problem
(c) they haven't decided that Government intervention is the best solution; and
(d) they haven't explained why occupational licensing, the most extreme form of regulation is the best solution.
Still I suppose if you've got the referee's whistle, if you think the masses are demanding some action, and there is no appeal court, any action seems sufficient.
I see the same things being mirrored in the current unruly debate re housing bubbles/unaffordability.
On 25 July 2016 at 9:30 am Dirty Harry said:
Ah, but Murray, following a game the ref heads not to the changing rooms to have a beer with the players, he hangs out in the Corporate lounge with the sponsors.

It matters not what the masses are demanding (they aren't), only that the sponsors feel they have a decent return for their 'hospitality'.

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