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FMA has eye on conflicted conduct

New Zealand’s regulator is studying how conflicts of interests are managed in this country as its counterpart across the ditch raises concerns.

Wednesday, January 31st 2018, 6:00AM 4 Comments

by Susan Edmunds

The Australian Securities and Investments Commission said tied financial advisers in that country were acting outside their clients’ best interests as much as 75% of the time when they recommended they shift to their employer’s products.

One in 10 clients were said to be left in a significantly worse financial position because of it.

The review focused on products offered by CBA, Westpac, ANZ, NAB and AMP.

A spokesman for the FMA in New Zealand said conflicted conduct was a key risk and one of its strategic priorities.

“That’s why we’re undertaking work to look at how conflicts of interest are being managed in New Zealand," he said.

In its annual corporate plan, it sets out that firms should have conflict-management procedures designed to put customer interests first.

It said that in 2017 only one of 33 financial service providers reviewed had measures set out in its licence application to manage the risk of conflicted conduct adequately.

“The work is focused on vertically integrated firms and conflicted business models. It looks at incentives and sales process, as well as conflict management policies and procedures.”

New financial advice rules to be introduced by the Financial Services Legislation Amendment Bill (FSLAB) will apply a duty to give priority to client interests to all retail financial advisers for the first time.

New Zealand Bankers’ Association chief executive Karen Scott-Howman said banks worked to ensure their customers' interests were considered first "in everything they do", so customers can make well-informed decisions.

“Well-informed customers are better placed to make borrowing and investment decisions. It’s also about increasing financial capability. Simply put, well-informed customers make great customers," she said. 

“The sale of financial products is governed by the Financial Advisers Act and the Financial Markets Conduct Act. Banks take their obligations under the legislation very seriously. They have robust processes in place to ensure they meet their consumer and regulatory obligations.

“For example, under the Financial Advisers Act, bank financial advisers must exercise reasonable care, diligence and skill. That means they have to assess how the product meets the customer’s needs. It also means they need to explain how the product or service works, and any limitations the customer should be aware of.”

She said FSLAB would build on these rules to include more explicit customer-first obligations for financial advisers. "This means advisers putting customer interests ahead of their own, regardless of their financial incentives and sales targets. We support this approach and are working closely with officials to help ensure a practical way of achieving this aim.”

Tags: client first

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Comments from our readers

On 31 January 2018 at 2:32 pm Denis said:
I like this bit -

"This means (bank) advisers putting customer interests ahead of their own, regardless of their financial incentives and sales targets. We support this approach and are working closely with officials to help ensure a practical way of achieving this aim.”


This is the direct opposite of how banks operate today.

The daily sales meetings are about the numbers and only the numbers. They're on a grid. You say how much new FUM you've got in.

The problem is the senior sales managers, paid $200K+ are not interested in any other narrative. They are there to get the sales. They are skilled people that can apply their talent to any sales force, selling anything.

But they do not belong in wealth management or financial advice because they do not understand (or want to understand) the whole wide world of professional financial advice.

It looks like their days are numbered though. Once the heat intensifies, the ELT will distance themselves from this culture and will dismiss them as ruthlessly as they would put down a farm dog that is surplus to requirements.
On 2 February 2018 at 10:32 am dcwhyte said:
Denis - interesting post.

To your point, I don't understand how any Vertically Integrated Organisation (VIO) can satisfy the intent of client interest first/prioritised, etc., - or however the concept is defined.

The VIO manufactures products for sale in order to maximise shareholder value - other stakeholders' interests are subordinate.

VIOs are entitled to set their stall out as they believe is commercially appropriate - but don't disguise this strategy as "advice".

VIOs are sales organisations and should be so defined in the legislation.

Their employees/contractors retained for the purpose of maximising sales should be referred to as Salespeople - not "Nominated Representatives" or any other meaningless appellation. The consumer should be able to identify clearly, immediately, and unequivocally the nature of the transaction being presented and the role of the individual involved.

FSLAB fails to provide this for consumers.
On 2 February 2018 at 2:14 pm MPT Heretic said:
Let me save both you and the officials some time and money Karen. Here is a practical way of achieving your objective. Limit the number of clients per adviser to 100, up-skill them to do financial planning not just sell, pay them a good salary and a bonus based on an annual customer satisfaction survey. Job done.
On 2 February 2018 at 2:38 pm John Milner said:
With an ever increasing compliance risk, I'm not too sure how long some, if not all banks will want to continue in non core banking activities anyway. We have seen a recent trend here and in Australia of wealth management and insurance businesses being sold. But of course it's not only VIO's that have conflict issues. It's almost inevitable where are large number of RFA's put their KiwiSaver business - where the highest commission can be found of course. I've witnessed this many times where a client is transferred from a low cost passive bank product to a high cost one. Only to receive half the return. What's that story; "where are all the clients yachts?"

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