AFA monitoring reveals some gaps

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Problems remain relating to AFAs' disclosure, record-keeping and the suitability of personalised services, the Financial Markets Authority says.

Friday, March 21st 2014, 5:55AM 4 Comments

by Susan Edmunds

It has released its AFA monitoring report covering the second half of last year, when it focused on advisers in Hamilton and Dunedin.

Thirty-two adviser business statements were reviewed and 12 advisers were visited.

The FMA said it found not all advisers’ disclosure documents followed the required format.

“In particular, there were a number of instances where AFAs were not detailing a reasonable estimate of client specific fees …Instead, a range of fees were documented.”

There were concerns about AFAs not supplying enough detail in their ABS about preferential terms with providers and inadequate disclosure of complaints.

The FMA said there was a lack of clarity in how AFAs established an asset allocation for a portfolio based on a client’s risk profile questionnaire.

There were also potential breaches relating to advisers not having adequate understanding of clients’ financial situations. Not all were offering regular reviews or taking reasonable steps to ensure clients were aware of the risks and benefits of following their advice.

“We expect that advisers should ensure that the key issues relevant to that particular client are outlined,” the report said.

It said some of these potential breaches could have been due to problems with record-keeping.

The FMA also looked at advisers dealing with UK pension transfers.  It reviewed the advice given by four advisers and said it was worried they were giving class advice when the situation was too complex.

Pension transfer advisers needed to analyse the client’s existing scheme compared to what they could get in New Zealand, taking into account the client’s own situation, the FMA said.

The report said the FMA had talked to 19 AFAs about their complaints-handling procedures. All had complied with the minimum requirements but some had not recorded any instances in the last 12 months where a client had expressed dissatisfaction.

“In future monitoring, where an AFA has no recorded complaints in the last 12 months, we will probe further to make sure the AFA fully understands the definition of a complaint, and question whether the complaints log is a true reflection of the case.”

It said the new code should be effective from the second half of this year. Its focus then would be on helping advisers transition to complying with it.

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