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FMA asks for client files

Advisers who received requests for information from the Financial Markets Authority (FMA) in its investigation into replacement business have now been asked to hand over copies of client files.

Wednesday, February 22nd 2017, 3:08PM 1 Comment

by Susan Edmunds

As part of its work into churn, the FMA identified 200 advisers who had a high estimated rate of replacement business.

It wrote to them with a section 25 request, asking for a list of all their clients, and all of those who had moved their policies since 2012, including details of the original policy, new policy and any non-standard terms involved.

It also wanted a list of all insurers clients had policies with, and details of the commissions and incentives advisers received.

That was then followed with another request, which asked them to present full client files for specified clients by December 15.

Sources said it was typical for the files of about a dozen clients to be requested.

“The files should include all information held in relation to the client, whether physically or electronically and must include copies of all information and documents you hold in connection with the advice provided. If you do not have a client file for any of the above clients, please explain why this is the case and how you service the client in the absence of any records," the FMA said in its letter.

It also asked for a full client file of any clients who had had a claim declined since 2012, or any who had contacted an external disputes resolution service about the adviser.

It asked for the details of any compliance reviews of advisers' systems, and confirmation of commission debt outstanding with any provider for more than 60 days since 2012.

Russell Hutchinson, of Chatswood Consulting, said it seemed the FMA had linked the issues of commission incentives and complaints with advice performance.

He said advice files would need to show not only that advisers offered a comparison of the products available, but some analysis of how they would fit with clients' needs and objectives.

“You need to connect that to some client objective, which is why needs analysis is so important in full advice.”

Barry Read, of IDS, said the second data request was easier for advisers to meet than the first, because many did not have a data point in their databases to identify replacement business.

He said his team had recommended his adviser clients add a note to their files when they submitted them to the FMA, explaining how their process works.

“Until you look at each individual client file, you don’t know if the replacement business was good or bad.”

Read said it was worth noting that the FMA had indicated the process it used for this request would set the benchmark for investigations into other product lines in future.

“It potentially could apply to any financial product. The lesson learned is no matter what product lines you are in, if you’re replacing business put the data point in your database somewhere so if you’re asked how many KiwiSavers you replaced, you can answer.”

An FMA spokesman said he could not say whether there were any requests outstanding after the December deadline, because the inquiry was continuing.


Tags: FMA

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Comments from our readers

On 28 February 2017 at 6:50 pm gavin austin adviser business compliance said:
I will be interested to note that when the full review of these advisers has been completed how many of the advisers found to be deficient actually had quote any compliance reviews of advisers' systems. That of course will depend on what if anything the FMA publish about the outcomes.

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