FMA paying more visits to AFAs

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Financial advisers have seen more of the Financial Markets Authority recently, its annual report says.

Thursday, November 28th 2013, 6:14AM 4 Comments

by Susan Edmunds

The FMA has increased its contact frequency with AFAs over 12 months ended June, and introduced a new, shorter “verification visit”.

“Our monitoring programme enables us to observe and record how AFAs are complying with their legal obligations and gives us the opportunity to provide them with feedback, so they can make any necessary improvements to their processes.”

It had focused on DIMS providers and commissioned a survey of AFAs, to which 900 responded.

“We found there is a good level of support and understanding of the FA Act and the Code of Professional Conduct for AFAs. Some advisers expressed concern that the new compliance obligations, such as the record-keeping elements of the Code, is adding to the costs of providing advice and is not always helpful for clients. We also heard that the legislation is complex, more guidance from FMA would be helpful, and that advisers were concerned about ordinary New Zealanders having sufficient access to financial advice…We share industry’s concerns in relation to access to advice and will continue to look for practical ways to address this.”

Barry Read, of IDS, who helps advisers with compliance, said he had definitely noticed the FMA using different types of contact and monitoring over the past year. “Our clients have been experiencing more calls asking questions and emailing regularly for information.”

He said the FMA’s monitoring visits were also not always as long and in-depth as they once were. He said it had been originally explained that monitoring visits would involve the FMA contacting an adviser, asking for client files to be made available, then a visit and audit, after which findings would be presented.

“But we’ve had some that have been a bit shorter than that and more interview-based. My clients’ experience with monitoring visits is that they’re generally pretty helpful for the adviser business. The way they approach is it they don’t come in with a stick… it’s like the good cop bit. If they come in on the back of a client complaint, it’s different.”

He said it was a positive thing that the FMA was scaling its advice rather than trying a “one-size-fits-all” approach that treated all AFAs as equally risky. He said DIMS practices would come in for more scrutiny than risk advisers.

FMA’s enforcement team had been engaged in 90 inquiries and investigations over the year, the report said. About a quarter were related to contraventions of the financial advisers’ regime.

The FMA’s income for 2013 $3,545,000 up from $2,076,000 in 2012 and against a budget of $936,000. The difference compared to the budget was attributed to increased regulatory charges due to regulatory demands.

The report revealed that one FMA employee is paid an annual salary of between $500,000 and $510,000, two receive between $280,000 and $310,000 and three are paid between $260,000 and $270,000.

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