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Financial Advice NZ could play regulatory role

Advisers could partially be regulated by Financial Advice NZ, rather than the FMA, if the new organisation can get sufficient support from the industry.

Wednesday, August 3rd 2016, 6:00AM 8 Comments

by Susan Edmunds

Michael Dowling

The presidents of the PAA and IFA addressed members at their combined conference last week.

IFA president Michael Dowling said the Financial Markets Authority had indicated that the establishment of Financial Advice NZ could be a step towards the regulator putting more faith in the financial advice industry.

“We’ve said is there a chance for us to be co- or self-regulating,” Dowling said. “We have to walk the talk first.”

IFA chief executive Fred Dodds said it was something he had brought up in early conversations with the FMA.

"I asked that question of Rob Everett - if we get this right, would there be any chance of us being self-regulating?"

He said the message was that it was something that would be considered, if it was possible to prove that Financial Advice NZ was going to be a success, if advisers were joining it for the right reasons and it was making a significant contribution.

"That's up to us to prove that we can make it work," he said.

A good professional body would have to have authority, independence, work in the public interest, rigour to ensure its advisers were interested in keeping up with CPD and aspiring to higher qualifications, and should have teeth to deal with advisers who stepped out of line, Dodds said.

"If we have a truly working professional body it ideally would be respected by the regulator and start paying some regulatory role but that's down the track. They're not going to give carte blanche to Financial Advice NZ just because we think it's a good idea."

As more advisers came under more intense scrutiny after the Financial Advisers Act review, regulating them would become a much bigger job, he said.

But a challenge would be getting the support of advisers who were not currently a member of any association, he said.

Liam Mason, FMA's director of regulation said the current review of the Financial Advisers Act did not contemplate adviser self-regulation.

"We do see a role for industry bodies in working to support the objectives of the review - to raise standards and improve customer outcomes across the whole industry, and the FMA will work closely with industry bodies to achieve this," he said.

Tags: Financial Advice New Zealand FMA IFA Professional Advisers Associations

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Comments from our readers

On 3 August 2016 at 9:49 am mike6156@gmail.com said:
If I was an Adviser looking to join Financial Advice NZ I would be alarmed at the proposal the new Association wanted to be a gate keeper.

I would have thought the new Associations major objective would be to represent the interests of it's dues paying members. Not so according to the new Associations spokespersons they want to be gate keepers and have the power and regulatory teeth to deal with errant Advisers.

The FMA struggles to cover the expense of keeping industry participants in line and in most cases reaches out of court settlements due to the exorbitant expense of proving culpability via the High Court. Don't see how Financial Advice NZ could do this any better nor have the cash to splash around seeking court sanctioned penalties for errant Advisers.

I would humbly suggest Financial Advice NZ may get better traction from the Adviser fraternity if their primary objective was to be a truly representative organisation for the NZ Financial/Insurance/Mortgage/Lending Advice participants.
On 3 August 2016 at 4:00 pm w k said:
mike6156: good point. i was also thinking about nzmba where it was almost compulsory. how did mortgage brokers or consumers benefit or did nzmba benefit more from the fees it collected? btw, where is nzmba now?
how about advisers who do not want to join fanz form another association?
On 4 August 2016 at 7:50 am Murray Weatherston said:
As a suspect for membership I follow this FANZ debate from the sidelines with interest.

Michael's comment indicates the end-game seems to be for FANZ to be at least the co-regulator, if not the regulator. But Liam Mason seemed to me to pour ice-cold water on that notion, at least in the short to medium (10 years?) term. Much more direct answer than the more political answer his boss is reported as having given Fred.

Fred lists a number of requirements that a good professional body would have to have
(1) authority,
(2) independence,
(3) work in the public interest,
(4) rigour to ensure its advisers were interested in keeping up with CPD and
(5) rigour to ensure its advisers aspiring to higher qualifications, and
(6) should have teeth to deal with advisers who stepped out of line.

I wonder if GR would be interested in seeking public comment from Fred (and Rod at PAA as well) (and their respective elected leaders) to ask them to do some introspection and say why in their opinion the existing IFA and PAA have fallen so short of those requirements that they see the need to form a different organisation. In blunter words, ask Fred and Rod "what's broken", and "how did your own organisations allow themselves to be so broken." If the present occupiers of these posts say they can't speak for the past, why not extend the net to all holders of their positions over say the last 10 years).

As a suspect, can I alert the vendors that it will be hard to convert me to a prospect let alone a member of FANZ. I already have a body that sets out for me a Code of practice, requires me to do CPD, subjects me to discipline if I fall out of line etc - no dear readers, not SIFA but the state apparatus. Why would I want to have two masters who would have to have different rules to?

My working hypothesis is that it is actually financial imperatives that are causing IFA and PAA to want to effectively merge in a new organisation. Just like the amalgamation of LUA and IAFP in the late 1990s to form IFA - but that din't really work, did it.

PS @w k - another suggestion would be for GR to interview Darren Pratley who I recall was Chair and CEO of NZMBA at the time of the amalgamation into PAA and ask him for his ex post assessment of what the outcome was and why.

On 4 August 2016 at 3:25 pm w k said:
@mw - the lenders at that time should also be considered parties to this "compulsory scheme" because they insisted on it. what about the credibility of the scheme?

i am not against one professional body upholding the standard/quality of advisers but i am afraid of hidden agendas - like an "old boys' club" type of mentality.
On 5 August 2016 at 4:17 pm Graeme Lindsay said:
Well said Murray!

When I think about the history of associations, I recall the merger of IAFP and IIAA (LUA) in the nineties that hasn't worked. This evidenced by a statement I recall reading in the last week that 80% plus of IFA's members are AFAs. If it is true that there are around 8000 rbnafas (RFAs for those who don't understand Murray's acronym), why are they not members of one of the associations?

The answer is, I suggest, that these non-member advisers do not see value in the offering of any of the associations!

The comments from the heads of the associations that they would like to see FANZ as the regulator are very dangerous! The two associations cannot attract members in a free market, so they want the regulator to make membership mandatory!

Having FANZ as regulator would be as bad as having the producer groups as regulators!

Let's stop this empire building and leave the regulator to regulate, let the association/s attract members by providing benefits at a price that advisers are prepared to pay, i.e. value, and leave advisers to advise.

Have a great weekend.
On 10 August 2016 at 7:16 pm Bruce Cortesi said:
Reading through the comments presented it is clear that none of these writers have attended any of the information sessions, webinars or indeed thought to seek the answers directly.

Rather they have thrown conjecture based on unsubstantiated personal opinion.

Many RFA's actually do belong to either or both bodies.

To think that the new organisation would become gate keeper is absurd and you have over-analysed this article.

Good on you Michael! Of course I do accept you acknowledge that you do not disagree with rasing the bar in an industry that needs to change and become more dynamic, responsive, bold, exciting and regain the passion that has been lost.

That the concept is to want a better outcome for members and the Consumer is a good thing, but that's not what the previous responses suggest. Very disappointing responses from respected people.
On 11 August 2016 at 11:56 am Murray Weatherston said:
Dear Bruce
The answer to the information vacuum that you allege has led to "conjecture based on unsubstantiated personal opinion" rests solely in your hands.

By all accounts the potential membership of Financial Advice is several multiples the existing combined membership of PAA/IFA.

I am not aware of there having been any information sessions/webinars for non members of the two organisations.

We keep reading that you are starting with "a blank sheet of paper".

If that is true, then what additional things could we possibly have learnt at such an event anyway?

Why don't you guys put out a Green or White paper (ie publicise) the "Why Who What How and When" of the possible new body so that the whole adviser population can start thinking about the idea?

That's what most people wanting to take a new product to market would do. [Since the South Seas Bubble, it should have been pretty hard to float a "blank sheet of paper"]
On 12 August 2016 at 5:25 pm Murray Weatherston said:
Self regulation of advice eschewed

Who said this:

We have also considered an option which involves the financial advice industry addressing through self-regulation the lack of clarity in the law on how financial advice providers should comply with their obligations.

We do not think that self-regulation is an appropriate solution for complying with the interests duty and related obligations. This is because self regulation requires significant compliance and cooperation from industry.

The primary problem that we see is that currently advice providers operate across a variety of different industry sectors (e.g. the financial planning, share-broking, investment advice, retirement planning, accounting and banking sectors). We do not think there is an industry body that can effectively enforce a self–regulatory code that applies, and discipline non-compliant advice providers, across the different industry sectors.

If the expectations for compliance with the interests duty and related obligations are set by industry, this may result in a wide variation in how standards are applied across the different sectors and a poorer level of compliance among advice providers.

We recognize that self-regulation is a possible solution for the wider regulatory process.

However, we have found that there are inherent issues in self regulatory practice. Considering our objective of providing greater certainty to industry and given the range of industry associations, self-regulation is unlikely to lead to a consistent understanding of the relevant obligations.

MW Comment: a few words omitted and a few words changed to generic terms to prevent very simple identification.

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