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FANZ addressing industry shortcomings with best-practice examples

One way Financial Advice New Zealand (FANZ) can address any areas in which some in the industry are falling short is to provide examples of best practice among its members, says FANZ chief executive Nick Hakes.

Monday, June 3rd 2024, 6:14AM 4 Comments

by Jenny Ruth

He was reacting to the Financial Market Authority's report on the insights it has gleaned from its monitoring of advisers and Hakes said the report was “balanced, insightful; the tone was right” in acknowledging this is the first year since new regulatory rules came in from March 17, 2023.

While it was favourable overall, the FMA's 60 monitoring visits to advice businesses and examining interactions with about 350,000 clients found some gaps, many of which come down to inadequate paper work.

“Naturally, everybody is having to adjust” to the new rules, Hakes says.

If clients are provided with good advice, “ultimately, this builds consumer confidence” and the industry needs to recognise which areas need improvement.

Advice businesses, particularly those which are growing, need to ask themselves whether they have adequate record keeping and the mechanisms and processes in place to ensure clients are receiving quality advice.

The FMA highlighted gaps in ensuring clients understood the advice they were given.

“I would describe this as informed client consent. There's lots of research that says when clients understand what their financial plan is about, or the lending, insurance or investment product and how that helps them, they're more likely to stick to the plan,” Hakes says.

He also cited research that shows those with financial advisers “enjoy a higher quality of life, more financial confidence and experience less financial stress.”

Lack of proper disclosure of fees, commissions and other incentives by some advisers was another of the FMA's findings.

Hakes says FANZ is working with its members to “champion high professional standards,” including to improve such disclosures.

The FMA also said some advisers aren't properly telling clients about disputes resolution options for when things go wrong – all financial advisers have to belong to one of the four disputes resolution schemes.

A report by the Ministry of Business, Innovation and Employment released last week found the best-known scheme was the banking ombudsman with 46% of people surveyed being aware of it, followed by the Insurance and Financial Services

Ombudsman scheme with 27%, but that awareness of the Financial Dispute Resolution Service was only 16% while Financial Services Complaints Ltd (FSCL) was only 14%.

Hakes acknowledges that advisers need to do more work to raise consumer awareness of the dispute resolution services available, but said that analysis of the insurance ombudsman scheme found that out of more than 4,000 complaints it received, only 2.2% related to the financial advice provided.

Tags: FANZ

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Comments from our readers

On 4 June 2024 at 6:51 am Paul Flood said:
I think this has the makings of a great "value add" for members if done well,

One small point: the new regulatory rules didn't come into force on March 17 2023, they came into force on 15 March 2023.

The key things that changed last year were the requirement for all FAPs to have a full licence (as opposed to transitional), and the end of the 2-year competency safe harbour for advisers (other than AFAs) who had been in the industry prior to 15 March 2021.

Had the regulatory rules come into force on 17 March 2023 then the FMA could not have measured FAPs against those requirements prior to that date. But they did, hence the monitoring insights report presenting findings from monitoring activity from 15 March 2021.
On 11 June 2024 at 5:33 pm JPHale said:
Hang on.

So we have a problem with consumer awareness of the dispute schemes, but 2.2% of 4,000 complaints raised with ISFO are related to financial advice?

Please help me understand how this is a problem with financial advice?

Awareness of DRS schemes is one thing; at the same time, consumers are usually very good at finding ways to complain about issues at the time. i.e. when it interests them, they google it.

But 2.2% of the 4,000 issues raised with IFSO aren't problems with financial advice; you could say from that the problem isn't financial advisers?

"We're not seeing complaints about advisers; consumers don't know enough to complain, so we need to teach them they can complain and where they can complain, to find all these hidden complaints"

I'm all for raising standards and doing better, but this witch hunt for buried complaints and problems caused by advisers that don't exist is getting tiring.

Sure, we can do better with paperwork; everyone in every industry and profession can.

We've had 9-10 years with AFAs and 4 years with the new rules, and we have very few real complaints that advisers have done things wrong.

Sure, there have been plenty of issues in adviser businesses that get managed on a daily basis across the industry, but these aren't the wholesale issues that whoever is driving this thinks they are.

The big issues have been the providers; poor conduct, poor administration, poor systems, and large-scale screw-ups. Advisers don't have market access at scale to mess things up nearly as well as the providers do.

Time for a new record?
On 12 June 2024 at 1:59 pm Amused said:
Well said JPHale.

Given the above advisers can no doubt look forward to the cost of their PI insurance reducing. If not, why not?

Advisers were told that a licenced industry would mean the likelihood of a PI claim happening would increase. Complete and utter rubbish! This never made any sense whatsoever if advisers were providing their clients now with a much higher standard of advice.
On 13 June 2024 at 7:24 am JPHale said:
Thanks Amused. We have seen some reduction in PI premiums, though not back to where they were.

Part of the problem here is when you only have a hammer everything is a nail. When you only see issues (complaints) then you only know of issues, therefore everyone must be doing the wrong thing.

The life industry has always had an optics issue, the positive things we do aren't talked about nearly as much as the negative.

The industry on the whole pays 93-94% of claims, yet its the ones not paid that get talked about.

My own claims for the last 6 years have had less than 1% declined, yet the grumbles come from those 1% and the rest get on with life.

About the same number have sent me gift baskets and thanked me profusely, but the masses of positive claimants have just got on with life.

My clients that grumble about claims grumble about the stuff not covered, either because it didn't qualify or they didn't take the cover that would have paid.

All of my grumbles come from clients who initially missed and then had something more serious that responded. Yet they still grumble about the one that missed.

One had a cardiac event with no heart damage and expected that their trauma policy should pay for the “trauma” of the pills he now has to take. This was genuinely a everything settled back to normal situation at the time.

Subsequently he's had a full claim paid as follow up testing a year later identified a need for stents, but its the first claim not paid he's still grumbling about.

This is a guy in his late 60’s still with a trauma policy who was running marathons, so neither poor or unhealthy.

We have a programmed disposition for issues, it's part of our fight/flight system as a result people look for issues and ignore the good things on a daily basis.

Those driving this narrative need to get out in nature and socialise with advisers doing the right thing more, because the closed in myopic thinking going on in the echo chamber is very unhealthy.

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