FMA issues first report card on AFAs
Authorised Financial Advisers have shown good ethics but need to work on their record-keeping and ensuring personalised advice is suitable for the client, the Financial Markets Authority says.
Friday, July 13th 2012, 10:25AM 
3 Comments
by Niko Kloeten
The comments are in the FMA's interim monitoring report, which it has released after visiting 34 AFAs over five locations: Wellington and Lower Hutt, Palmerston North, Tauranga, Invercargill and Queenstown.
"The monitoring team is encouraged by the standard of ethical behaviour, based on these first visits, and equally encouraged that AFAs are generally meeting our expectations in relation to the minimum standard of client care," the FMA said.
However, the regulator has given feedback in a number of areas AFAs need to work on.
Twelve AFAs had issues relating to disclosure, although the FMA said these were mostly "minor technical issues" due to the "prescriptive" nature of the regulations.
Of the 146 files client files the FMA examined, 35 fully met its expectations with regards to Code compliance; all other files received one or more comments regarding various sections of the code.
The most common comment (82 in total) was around Code Standard 8 - Suitability, followed by Code Standard 9 - Risks and Benefits (43) and Code Standard 12 - Record Keeping (35).
Twenty-four files received comments on Code Standard 7 - Sufficient Information, while Code Standard 6, which requires advisers to behave professionally, was mentioned in 23 files.
Some of the concerns identified by the FMA included the "use of technical jargon that may not be understood by the client" (Code Standard 6) and that "the scope of service described did not match the service provided" (Code Standard 7).
Regarding the most commonly cited section, Code Standard 8, the FMA found "gaps in client files" and said there was sometimes "insufficient information to demonstrate that the adviser had an up to date understanding of the client's circumstances."
It also said it "had concerns over instructions to opt out of Code Standard 8, and the extent to which they client may have been influenced. For example, we had concerns about the nature of the AFA service provided to the clients."
However, the FMA noted this didn't necessarily mean the financial advice given was unsuitable.
Niko Kloeten can be contacted at niko@goodreturns.co.nz
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Our own observations when transferring new clients into E-Broker would echo the FMA’s findings on record keeping. Certainly the level of financial data we are asked to transfer is often very light – in many cases there are no assets or liabilities stored and income data is scant at best.
We are unsure whether this is attributable to an element of laziness, or if it is previous software which has been difficult to drive.
As a minimum starting point for record keeping, the logging of inbound / outbound calls and emails, all meetings and meeting notes driven from the client file, we think helps practitioners get into a ‘compliant’ frame of mind. Having financial data on board and it being easy to access, can also be used as a talking point with clients and thus becomes a definite boost to risk sales.