Regs look too heavy for sole practitioners, SIFA chief says

The chance that financial advisers can survive as sole practitioners in a post-regulation world is "declining by the day", according to Murray Weatherston, head of the Society of Independent Financial Advisers (SIFA).

Wednesday, July 15th 2009, 5:22AM 3 Comments

by David Chaplin

Weatherston, who runs his own Auckland financial advisory firm - Financial Focus, told Good Returns the swag of recent government regulatory proposals for the industry appeared to place a heavy compliance burden on individual advisers.

"The probability that [the government] would take a sledgehammer approach to regulating advisers is increasing," he said.

Weatherston said if the cost of compliance under the coming regime was too high sole practitioners would be forced into the arms of institutional businesses, reducing consumer access to independent advice.

However, Angus Dale-Jones, Securities Commission director supervision, said it was "premature" to say how the advisory industry would be affected by regulation, given that much of it remained to be written.

"Until the Code Committee is formed and they write the rules around the advice process no-one can really say how great the change [to the industry] will be," he said.

It is understood the members of the Code Committee will be announced within days.

Dale-Jones said while advisers understandably were becoming more anxious as further details of the regulatory proposals were released, the legislation was not intended as a draconian crackdown on the industry.

"This is not a piece of financial services industry regulation," he said. "But it's about registering and authorising professionals; it's about the human qualities that those professionals who are interacting with clients need."

The government is currently compiling feedback to three papers regarding the regulation of the advisory industry: two from the Securities Commission - one dealing with competence and the other on regulating and supervising advisers, and; another discussion document authored by the Ministry of Economic Development (MED) outlining disclosure proposals.

Dale-Jones said about 70 responses had been received on the competence paper, which has now closed for submissions. Interested parties have until July 30 to respond to the commission's 'Staff paper on regulating and supervising financial advisers' while submissions close for the MED disclosure paper on August 12.

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Comments from our readers

On 15 July 2009 at 8:59 pm Russell Hutchinson said:

Murray is probably right. The causal mechanism comes from an increase in fixed costs - which will tend to increase business size. The increase in fixed costs comes from higher educational standards and the investment required in systems. Of course, it won't happen overnight - but it will happen.

On 17 July 2009 at 7:31 am Bazza said:

I think Angus summed it up best though, 'Premature'. Until we know exactly what is required it is all theory, and everyone knows the difference between reality and theory, in theory a bumble bee can't fly.

On 20 July 2009 at 6:40 pm Robert said:

Of course Murray is right and it must seem like a sad day particularly for those advisers who have a acted professionally and ethically but we can no longer justify (never could) a system where any individual could set up shop, give advice and, if turned out to be poor advice leave the consumer with no recourse.

I'm not suggesting that larger organisations will necessarily act better, look at recent articles in Australia on how the bank based advisers and large accounting firms have advised on managed investment schemes but we have an opportunity to establish standards and processes which means 1. we have competent advisers. 2. there are systems and processes that ensure compliance with standards, (a one man band can't police themselves) and 3. there are ways for consumers to get justice.

Unfortunately the focus does not see to have fallen on the organisations creating these products just on the advisers who sell them