Stop selling product and start advising, FMA warns
FMA director of compliance Elaine Campbell says the financial services industry needs to stop thinking about what it can sell people, and start thinking about people's needs.
Friday, July 25th 2014, 6:46AM 
17 Comments
"The entire financial services industry needs to stop thinking about what the customer will pay for, and start thinking about what they actually need and what will actually will benefit them," she told delegates at the IFA conference in Auckland this week.
"Iin retail financial services there is a big difference between what people can be pursuaded they want and what they actually need."
She told advisers that the new regulatory environmnent will challenge all of you to do more than just the bare minimum; and if you do that you will be successful in the new regulatory environment."
Campbell said people who comply with the FMA and "play it straight", will see the good face of the regulator. Those who don't will see something quite different.
"If you are making good fatith attempts to reach good outcomes for markets and customers we will be both supportive and pragmatic. We will not be a regulator who applies regulation in a pedantic way. Something to be endured and chipped away at.
"We won't demand things that aren't material. We will act where there are sound reasons to do so and in a manner that's proportionate to the risk as we percieve it. But we do expect you to play it straight.
"Those who put their interests first, who shrug in the face of harm to the market or who decide not to cooperate with us, or to cooperate gudgingly and defensively will see a very different face of FMA."
Campbell acknowledges there is some pain at the moment amongst financial advisers over regulation, but suggests some gains are emerging.
"We do appreciate that right now there is a point in time pain for broader gain. This pain might be being felt most accutely at this moment in time as a number of obligations coalese, but on balance the regulatory burden is about right.
"We are starting to see some results," she says. "We are starting to see green shoots of investor confidence which is encouraging for the advisor industry."
Campbell says that with any significant regulatory changes there are going to be teething problems.
"We at FMA commit to work with you to find solutions to manage the issues in away that does not undermine th confidence we are seeking to build."
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Comments from our readers
On 25 July 2014 at 7:48 am Pragmatic said:
To date I have seen little evidence to support the statement that "We at FMA commit to work with you to find solutions to manage the issues in away that does not undermine the confidence we are seeking to build" On 25 July 2014 at 9:41 am Brent Sheather said:
Can’t argue with any of this. I particularly like the “play it straight” idea. If the FMA is genuinely interested in ensuring everybody “plays it straight” it should immediately resolve the following issues which are not being “played straight” at all.
• Performance fees on equity products which are benchmarked against absolute return or a fixed interest measure, illegal in the UK but great business in NZ.
• The murky world of backhanders and favours which is IPO’s. For instance who got what in the Genesis float and why did some people get 600,000 when most Mum and Dad’s got 3,000 odd shares and a “sorry about that fool” letter from the Treasury?
• Poor disclosure in the “new improved” disclosure statements.
• FMA directors who are obviously conflicted
• Insider trading – why no insider trading cases in NZ when everyone knows it happens eg Goodman Fielder in early April.
Look forward to immediate progress on these issues which incidentally are much more material than ensuring some finance company with $1 million under management files its accounts on time.
On 25 July 2014 at 1:06 pm Ally said:
Well said Brent. As to your first point, it appears the "Performance fee" if the PIE funds management company is particularly appalling: its seems they have no benchmark at all: they just take 15% of the return whatever it is (on top of a 1% annual management fee).
And as for this FMA women's statement that they are starting to see "green shoots of investor confidence": just wait and see when the current bull market ends. Mum & Dad investors are being told by the FMA and Disputes Resolution outfits that any loses they incur are not their fault and they should lodge a complaint. The floodgates will open once the markets are down 20% or more.
On 25 July 2014 at 1:46 pm Long timer said:
Maybe I have been in this business too long but I must say I find the first two comments in this story, in my opinion, unbelievable.
On 25 July 2014 at 2:56 pm Brent Sheather said:
Hi Ally
Thanks for that. Hadn’t noticed the Pie Fund’s performance fee! I was going to mention the “green shoots” comment too because as you say confidence is a function of where the stockmarket is and already we are seeing things starting to crack with the tech stocks with large capitalizations and next to no assets returning to earth. As Warren says it’s only apparent who is swimming naked when the tide goes out.
On 25 July 2014 at 5:20 pm Pragmatic said:
If the FMA had any morsel of industry experience they would realise that common sense is being overwhelmed with euphoria at the moment, and attempting to inject some reality into consumer's expectations.
But instead they suggest that there are green shoots etc.... hmmm - it really makes you wonder if regulatory folks have ever invested, or have any understanding of markets / the industry.
On 25 July 2014 at 8:10 pm traveller said:
This statement by Elaine Campbell seems to have more of a feel of a stick rather than a carrot. I sense the general lack of a " let's get together and work out the concerns" attitude, more a " this is what you have to do, so do it; or else" On 28 July 2014 at 12:54 pm Dirty Harry said:
I fear that a new stick-based mentality is creeping into the regulators. I find words about not being "pedantic" slightly ironic and I hope that the presentation of this story is inaccurate - because this report shows a change in the regulators. It is dripping with contempt for the majority advisers who genuinely try to do good things for their clients – just by lack of acknowledgement in this report of the good attempts most have made to get better, be compliant etc. Reading this it feels like we're all deemed pushy salesmen, "the entire industry needs to.... "
This "stop selling start advising" thing, if it’s meant for the likes of me, is more offensive to me than those disgusting cowboy commercials. Or are they meant for those bank sales teams with "no commissions"? In which case; right on!
On 28 July 2014 at 4:40 pm btw said:
There's nothing wrong with being a salesperson. It’s an honourable profession (or can be). The problem arises when someone who is really a salesperson claims to be an advisor to the client, but doesn’t want to accept the more onerous obligations that go with that (fiduciary etc).
If you don’t like advisor obligations - don't call yourself a client advisor. Call yourself a salesperson, and go make some money free of FMA interference.
On 29 July 2014 at 12:09 pm chc4me said:
I say good on the FMA. Advisers are still stuck in the 'how much can I earn from this appointment' mentality.
If an Adviser is not competent in a particular area of advice, the client should be referred for that particular need (with no financial gain or expected split of fees). Product providers need to change their focus too, providers are still offering increased commissions (call it "Trail" if you like...), trips to the Rugby World Cup and other perks.
To reference another Good Returns article, there is no way advisers can be 'self regulating' while non-professional behavior continues.
A Regulator with a stick remains essential.
On 29 July 2014 at 5:23 pm LRD said:
Having just read Elaine's entire speech it strikes me that (a) maybe not all of the earlier submitters have taken the time to read it and place those remarks in their proper context; and (b) coverage by Good Returns appears to be somewhat selective. There are two sides to every story; I am not sure that we are giving FMA their due in the way this thread is developing. On 30 July 2014 at 9:22 am Mac said:
Well said "Dirty Harry". My sentiments exactly. On 30 July 2014 at 2:27 pm broker said:
Better get rid the sales targets that the bank staff have then ah? On 30 July 2014 at 3:30 pm Dirty Harry said:
LRD assumes incorrectly earlier comments were made without reading the whole speech.
There are bad advisers out there. There are bad lawyers too. Hell, my electrician tells me that he keeps finding terrible work in people's houses that are a fire waiting to happen which could cause damage and danger. But I haven't heard him imply that most sparkies are shonky, and you don't see the Electrical Workers Registration Board publicly stating all Electricians should stop crimping and start soldering.
My problem remains that taking a tone that implies all of us are greedy crooks out to rip off customers by overselling; that we ALL need to stop selling, start advising etc, will alienate those who are making an effort, who do care about doing a good job and being paid fairly for it. I do, and most advisers I know do too.
Maybe there are things I need to work on, maybe lots of us need to make some changes. But honey catches more flies than vinegar.
On 31 July 2014 at 8:19 pm Ellie Broderick said:
Chc4me - no one is saying the stick isn't necessary. It's just being used all the time and indiscriminately.
Speeches like this one and the "guidance" issued by the FMA have the effect of regulation without due process. Something we've seen before from the FMA. They like to be right even when they haven't the faintest idea about the practicality, efficacy or suitability of what they want to push onto the industry. It's been an ivory tower since day one - too many senior employees who haven't spent a day at the coal face and don't consult with those who are.
Has there been any attempt to work cooperatively with industry?
Maybe the Minister responsible needs to get out and about to determine if the FMA is actually meeting its aims? Is the Minister capable of this - his inaugural INFINZ address didn't inspire confidence, and there's been little of substance since.
Nonsense around Trustee's involvement in the investment process, the AFA process, the failure to detect Ross, Regulation by guidance notes, the recent AML and DIMS nonsense, the lack of transparency around the Strategic Finance, advising on bank sub debt, the conflicts of interest and lack of broad industry experience in the FMA board... the list goes on.
The FMA appears to hold the industry in contempt. Elaine's offensive comments about "advise not sell", echo those made by the former head of the FMA, "the new sheriff" and of former Head of Primary Regulator Sue Brown; "(the fund management industry) is an old boys club".
They live in a world where the horse hasn't yet bolted.
Did Simon Power quit when he realized he was creating a monster? Does Mr Foss care about the clear attempt by the regulator to capture the industry?
When the bull run ends and the stable door the FMA is building is shown to be on the wrong stable maybe we'll get a regulator who works with those who play it "straight".
And please Mr Sheather, don't point out any more real and present dangers. It only encourages them to get on another horse backwards.
On 6 August 2014 at 8:56 pm Ellie Broderick said:
Maybe Elaine should take up her crusade with Kiwibank.....
"CEO Paul Brock says Kiwibank's aiming to sell more products, including the likes of insurance and KiwiSaver, to existing customers to catch up with the big four banks who it trails in terms of products sold per customer.
Brock outlined the cross selling push, saying the main growth opportunity for Kiwibank now is in its existing customer base"
On 7 August 2014 at 2:43 pm brent sheather said:
Good luck with that idea ! A cynic might observe the movement of people between the FMA, big finance and the government.
That cynic might then conclude that we will never see any regulations that seriously impact anyones next career move.the financial times and former members of the SEC have voiced these concerns overseas and they apply doubly so in nz.
It's a sad fact of life.
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