Financial Planning
Advisers should be approaching regulation from the point of view how can we best prepare ourselves for it.
Wednesday, February 4th 2004, 10:19AM
If you asked a selection of financial advisers what the issues they and this profession face in the 12 months ahead, the biggest one would have to be potential regulation. While I agree this is going to be a hot issue for us, I feel that advisers should be approaching it from the point of view of not what is going to happen but how can we best prepare ourselves for it.
This year will be taken up with much discussion on potential regulation but the year end will by no means see the conclusion of this issue. In fact if the wheels of government turn at their usual speed, neither will 2005. I do believe though that by the end of this year, we will have seen progress made over what form regulation might take.
While that final form and who will be in control of the process is still to be determined, there are aspects of any regulatory regime that we can assume will be included. Advisers would do well to note them and to begin to prepare for what now appears to be the inevitable.
There will undoubtedly be some form of basic competency test, ie: academic evidence of competency to provide advice.
There will be some process whereby disgruntled clients can take action against their adviser and, if proven correct, have that adviser stopped from giving further advice.
I believe we can take those two as given. Advisers should accept this and be taking a good look at themselves and their businesses over the course of 2004 to see if they can live with those potential requirements.
I think it would be unwise for today's advisers to believe they will be exempt from future competency requirements. I do not believe that simply being in business on day one of the new structure and effectively being grand-fathered into the new regime will be sufficient. There is a high likelihood that all advisers will have to exhibit academic competency within some defined period.
What the level and shape of those requirements will be has yet to be determined but with the relatively narrow choice available in New Zealand, it is probably not too hard to identify what will qualify.
Advisers should be assessing their own academic qualifications and where necessary getting on the track to up-skilling.
In terms of possible increased availability of complaints processes for clients, advisers need to carefully address their business practices and office procedures. Sloppy or nonexistent record keeping or lack of defined business processes will be painfully found out in any dispute situation. Best business practices are well documented and a review of individual practices in 2004 would be timely.
For investment advisers I believe there may be another issue to be faced in 2004. Investment clients have had a difficult three years but, anecdotally anyway, I have not heard of a significant decline in client numbers as a result.
One theory I hear is that this is due to all the good work the advisers have put into training the clients combined with the level of trust the client has in their adviser.
While this may be true the cynic in me wonders if, given the size and relatively rapid rate of the market's fall, clients didn’t say to themselves “I can’t sell now as I will lose too much”.
Further, if the market's recovery continues to a point where at some time in 2004 investment portfolios recover to at or near levels last seen almost four years ago, the comment may well change to “I can’t live through that again, I’m cashing up”.
If that is the case, advisers beware. The year ahead could be a good opportunity for advisers to spend time with their clients reinforcing their value and the fundamental logic of their advice.
Phillip Matthews is the chief executive of the Financial Planners and Insurance Advisers Association
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