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The FMA turning up doesn't mean it wants to shut down an adviser

The Financial Markets Authority wants to work collaboratively with financial advisers and they shouldn't assume the regulator is out to get them when it's performing its industry monitoring functions, Michael Hewes, the FMA's director of deposit taking, insurance and advice, told the Financial Advice NZ conference earlier this month.

Wednesday, March 13th 2024, 6:48AM 6 Comments

by Jenny Ruth

“We're not turning up to shut you down,” Hewes said, unless the adviser has been showing behaviour outside of their licence conditions.

The FMA would like to establish a relationship with the industry and to have advisers acting as “our ears and our eyes. If you're seeing conduct that isn't up to your standard, please let us know,” Hewes said.

“We can't be everywhere,” he said, adding that the FMA would like to be told about “anything you see that makes you feel uncomfortable, anything that could bring the industry into disrepute.”

The FMA's principal adviser, Crystal Burbery, told the conference that the FMA has been listening to the industry, particularly its concerns about “the intensity of monitoring.”

That has led to the regulator revising its information sheet that provides information on how it monitors financial advice providers.

“We don't know what you want from us unless you tell us,” Burbery said.

When the FMA decides to monitor a business, it isn't usually because it has received any complaints but is part of its process of understanding how the financial advice businesses are operating in New Zealand.

That monitoring could all be online or it could include an on-site visit to an advisory business or a combination of both, she said.

Most on-site visits won't be longer than a day but could be up to a week for larger businesses.

The FMA will usually telephone the business to work out the timing of such visits and outline how the process will work.

That will usually be followed by a formal letter outlining what was discussed.

After a site visit, the FMA will usually provide verbal feedback but may also send a formal letter outlining areas in which it wants to see improvements.

The key areas the FMA will be looking at are record-keeping, the suitability of any advice provided and that the adviser is providing clients with the legally prescribed information covering things such as fees, commissions and who that adviser's disputes resolution provider is.

“Record keeping protects you in the event of a dispute,” she said, adding that if an adviser relies on verbal communication only, then if a dispute arises years down the track, the adviser is not likely to remember that conversation.

The records don't have to be very “granular” but do need to show that the adviser understood the client's needs, provided advice that met the client's needs and that the client understood the advice, she said.

“It's always about your business policies and practices, not just client files, reflecting what you're doing day to day.”

Tags: FMA

« Analysing AI’s Impact on Financial Advice, Part 2BusinessNZ says FMA should shelve its fair outcomes guidelines »

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Comments from our readers

On 13 March 2024 at 4:49 pm w k said:
this make much more sense. thank you fma for clarifying.

wonder if advisers had been over$old by $omebody?
On 20 March 2024 at 4:21 pm Amused said:
"The FMA would like to establish a relationship with the industry and to have advisers acting as “our ears and our eyes. If you're seeing conduct that isn't up to your standard, please let us know,” Hewes said. “We can't be everywhere,” he said, adding that the FMA would like to be told about “anything you see that makes you feel uncomfortable, anything that could bring the industry into disrepute.”

If the FMA wants to demonstrate that it is policing the industry effectively for consumers, can I suggest that as a matter of priority it should be paying a visit to Propellor Property and its founder Nikki Connors. The company’s website states that Propellor Property works with developers, matching new builds to investors looking to buy, provides financial advice and assessment, and receives a fee for setting up purchases. Propellor Property Investments Limited is a Financial Advice Provider (FAP) licensed and regulated by the Financial Markets Authority to provide financial advice.

I've read today that Propellor Property is now facing another application to put into liquidation. This is now the second application to put the business into liquidation in two years, after Inland Revenue applied to put it into liquidation in May 2022. In late 2022, two other businesses associated with Connors were put into liquidation by Inland Revenue due to unmet tax obligations.

Given the above does the FMA consider Nikki Connors to be a fit and proper individual to be providing financial advice?



On 21 March 2024 at 9:24 am lifeadviser1 said:
@Amused

Propellor Property is an interesting case. It is not at all clear that Nikki Connors provides financial advice, as on my reading of the FMCA 2013 direct purchase of a residential property "investment" is not a financial advice product. (I have thought about this many times over the years, and think that advice on property investment should be captured by the FMCA - think back to the Blue Chip fiasco.) Scarequoting "investment" here is not to suggest that property investment doesn't help build and preserve wealth, just to note that is not a kind of investment product captured the FMCA on my reading. Very happy to be proven wrong on this point of law.

Those who would usually provide advice on residential property investment are real estate agents, and their activity is specifically exempted under section 19(1)(iv) of the FMCA.

Perhaps Connors should be on the FMA's radar for potential breach of the fair dealing provisions of the FMCA, if she is indeed holding herself out as a financial adviser and the only service she provides is "advice" on direct investment in residential property? Further, if it turns out that I am right on the point of law, one wonders how Propellor was granted a FAP licence?

In addition to the question of how, one may wonder why Propellor has a FAP licence with Connors engaged as a FA? Genuine misunderstanding of the kind of advice being provided (regulated vs non-regulated)? Or, more cynically, a conscious attempt to provide an air of legitimacy to an operation run by someone with less-than-respectable track record?

If it turns out that I am wrong on the point of law (that residential property investment is not a financial advice product), then Connors is subject to the FMCA, in which case the FMA could start by looking at the conflict on interest disclosure publicly available on the propellor website? It discloses a COI, but only states that if a client follows Nikki Connor's advice with her Propellor hat on, then Nikki Connors will act ("under my Real Estate License") for the vendor, Metropolis Real Estate. However, there is no explanation of the steps that have or will be taken to manage this very significant COI, as required under the disclosure regs.



On 21 March 2024 at 1:35 pm Aggressively_passive said:
@lifeadviser1 and @amused

I don't know if has been tested, but taking a deep dive into the implications of Section 431C, (1), (c)

Connors work ("investment" "advice") may be captured.
On 21 March 2024 at 2:56 pm valkyrie6 said:
@ lifeadviser1

Very good points you have made here around the distinction of real estate agents and financial advisers blurring the lines on what and who they actually are and where their income is derived from ( in Nicci’ s case from developers) and yes this reminds me of the old Blue-chip days that went belly up and stung investors big time.

I believe in the UK laws were made that land agents could not be mortgage advisers and vice versa, land agents could not have their own in-house mortgage advisers or own mortgage advice companies as it deemed not to be an arm’s length transaction. ( Gee I wonder why?)
I believe the current head of the FMA in NZ was all over this when she worked in the UK.

Currently in NZ we have real estate companies that own and operate their own in house branded mortgage advisory companies where the land agent owns the mortgage client CRM which is housed in Australia! , we have land agents based in Australia actually owning dealer groups in NZ, hardly arm’s length and clearly not disclosed to the consumer at the point of engagement .
FMA in NZ need to wake up
On 22 March 2024 at 5:25 pm lifeadviser1 said:
@Aggressively_passive

Thank you very much for your comment, I hadn't considered that the activity might be captured by 431C(1)(c).

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