Sharebrokers now in FMA's sights

The FMA, in its bid to understand the financial advice business, has now turned its attention to authorised financial advisers who work for sharebroking firms.

Friday, September 20th 2013, 6:59AM

by Susan Edmunds

It began a monitoring project in May, specifically focusing on AFAs who are accredited as NZX or NZX associate advisers.

The purpose of the project was to ascertain the services and products generally offered by NZX adviser AFAs, review advice processes of NZX Participants to enhance FMA’s understanding of NZX adviser AFAs, review high-risk processes, based on an initial risk assessment, and environmental scan and perform specific targeted monitoring, based on the initial risk assessment.

Phase one, which has just finished, was primarily information gathering. Phase two will be more targeted.

Eighteen ABS reviews were conducted and followed up where appropriate. Several compliance managers were interviewed.

The FMA found that the advisers’ ABS documents covered the required and suggested information as contained in the most recent version of the guide, although in some instances further consideration about how information was presented could make them easier to read, it said.

“It is apparent from our review that most of the information contained in the ABS documents will be prepared centrally by compliance resources before being provided to AFAs to tailor to individuals’ circumstances. Whilst this is expected and acceptable, we would remind AFAs that they are responsible for the information contained in their own individual ABS.”

In one case, an AFA had two different formats for their ABS documents, one of which still contained drafting comments. “Again, we remind AFAs that regardless of the use of standard ABS templates, the information contained in the ABS is their responsibility and should be reviewed for accuracy prior to completion.”

As part of the next phase, FMA will test whether the scope of services being provided is clearly described to the client, and whether the service matches what was agreed between the adviser and client.

“In relation to a personalised service, where there is a high number of clients per adviser, FMA will be interested in whether the requirements of the Code have been met, particularly with respect to suitability.”

The FMA will also look at whether client opt-out of suitability assessment provisions are being used properly.

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