AFAs still struggling with requirements: FMA
Authorised financial advisers need to bring their business practices up to standard or face referral to the Financial Advisers Disciplinary Committee, the FMA has warned.
Monday, September 15th 2014, 6:00AM 
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by Susan Edmunds
It has released its latest monitoring report of AFAs.
It found similar issues to those identified in past reviews, including ABS documents that lacked detail.
Director of compliance Elaine Campbell said: “That’s not to say that they’re universally not getting better. An issue with any new regime is that you expect standards to increase over time. We’re always looking for the best level of communication with clients possible.”
The FMA also noted the need for improved record-keeping, the need to ensure personalised advice suited each individual client and sought to emphasise the requirement of advisers to clearly define clients’ financial goals.
“With the introduction of the revised Code, we urge all advisers to consider their obligations to ensure their business practices, documentation and processes meet, or exceed, the minimum standards. Where we see ongoing or serious instances of non-compliance, or in cases of potential harm to customers, the FMA will continue to exercise its statutory powers. This includes referrals to the Financial Advisers Disciplinary Committee where appropriate,” the FMA said.
It said a number of AFAs were documenting generic principal benefits and risk, rather than making them client-specific. This has been identified as a problem in earlier monitoring reports, too.
Its review of AFAs within QFEs found the bigger organisations had well-structured compliance departments that helped advisers meet their obligations. But there were still concerns.
Advisers who received shares as bonuses could face a conflict of interest concern, there was confusion around disclosure documents, the scope of service was not always clear, there was a lack of detail around client financial goals and inadequate information was sometimes provided about the risks and benefits of following the adviser’s advice.
Campbell said a key message from the FMA was that paperwork was important for all advisers. “There’s a reason why regulation is underpinned by producing paperwork to put in the hands of clients. It addresses the power asymmetry between advisers and clients.”
She said it enabled clients to go away from a conversation in which they might have felt overwhelmed with information to digest. “For many people seeking advice, it might be the first time they’ve done that and when you’re placed in that situation, you don’t always remember everything that was discussed.”
It would also help advisers if there were issues in future, she said, if the advice was well documented.
Campbell said the report was intended to help other advisers get their own businesses into order and it was not intended to signal a problem with the industry. “Through this particular monitoring report, there’s nothing that’s going to keep me awake at night.”
You can see the report here: https://www.fma.govt.nz/keep-updated/reports-and-papers/
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There is nothing that helps work out what the FMA actually finds good or bad.
For example, where the FMA is finding problems "documenting the client’s financial situation, financial needs, financial goals and tolerance to risk in enough detail" what does it mean?
Is the AFA only writing down the client's name? Or did they write a 14 page analysis but used the wrong font? What did they not do?
I think the FMA needs to start using specific examples in these reports.
Then other AFAs can either say "what a silly AFA that was, I would never do that" or "Hey, what, even THAT is not acceptable".