Advisers needed regulation: Everett
New Zealand’s lack of regulation of financial advisers was made clear in the global financial crisis, the Financial Markets Authority’s chief executive says.
Wednesday, June 18th 2014, 6:00AM 
3 Comments
Rob Everett spoke at a Trans-Tasman Business Circle event in Auckland this week, where he acknowledged increasing regulation was a top concern for many in the financial services sector. But he said the regulatory load in New Zealand was justifiable and manageable.
Everett said almost all of it was a result of the global financial crisis and the collapse of finance companies in this country.
“The fincos revealed other – less obvious – shortcomings in New Zealand financial services. These shortcomings highlight, in turn, areas that need regulatory attention. One area was financial advice. Many of the people who bought debentures in the fincos shouldn’t have done so.”
He said the finance companies were too high-risk for the investment profile of the investors and the risk premium they were offered.
“We know that some of the retail investors bought the fincos based on professional advice. We have seen that some of that advice didn’t take into account the needs of investors, didn’t explain the risks, and was incentivised by high direct and trailing commissions paid by the finance companies.”
He said the regulation of financial advisers was found wanting.
“High-quality advice is partly a result of high-quality advisers working to high professional standards. And it’s also a result of sound regulation that is applied carefully and consistently.”
But he said advisers had recognised the need to raise their standards as an industry. “Their response to regulation – in the wake of the GFC, the finance company saga, and Ross Asset Management – has been largely positive and focused on reframing the need to act in the interests of the customers.”
A confident, competent adviser population was positive for capital markets and the economy, Everett said. “Of which a critical component must be independent advisers.”
FMA would try to take more of a carrot than a stick approach to the regulatory compliance of businesses of all sizes.
“Where businesses are a few degrees off the mark, we’d prefer to help you get it 100% right, provided you are acting in good faith - rather than head straight into enforcement territory. I see our role in offering support and guidance as core, and we’d rather help the industry achieve good outcomes than just parade a belt full of scalps to show how good we are at taking people to court.”
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Let's not forget some NZ medium-size companies and NZ big companies who flogged some dodgy stuff
And they are still in business today
As advisers we still need to be very vigilant
e.g. Look for integrity - are they doing the right thing even if we are not looking ?
With the majority of finance company exposures being direct (ie: without advice), then surely the regulatory attention should be towards improving the oversight of this component of the industry. I'm not sure that the Ross occurance warrants the current regulatory reaction, as rogues will tend to operate irrespective of the rules & regulations.
I have said before, that the majority of advisors continue to act for the benefit of their clients, with clumsy myopic regulatory burdens doing nothing to enhance or protect that outcome.
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Was not David Ross authorized by Mr Everett's FMA?
A lot of fine Advisers have been hounded out of industry.