FMA wants to manage advice costs

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Managing costs on adviser businesses is crucial to ensure New Zealanders have access to advice when they need it, the Financial Markets Authority says.

Tuesday, February 3rd 2015, 6:00AM 1 Comment

by Susan Edmunds

The FMA’s director of compliance Elaine Campbell said it was mindful of the cost of regulation on advice businesses.

“We are aware we are a draw on financial adviser businesses,” she said. “We need to be careful about balancing that cost of compliance against the return to consumers.”

One of the FMA’s big concerns what that Kiwis who needed advice could get it, she said. “But it also needs to be sustainable from a business perspective. That’s a real challenge.”

Campbell said the regulator had engaged with the financial services sector a number of times to discuss their value proposition and how low net-worth clients could access advice.

Commentator Russell Hutchinson said it was becoming common for class advice to be offered as a substitute for personalised advice.

He pointed to banks offering limited advice on KiwiSaver transfers.

“The card on the door or the desk says that person is a financial adviser and they are but they’re a QFE adviser, they’re not doing personalised advice. They just turn around a brochure and a product disclosure statement and say on p22 is the risks, here’s our returns. There’s no advice and they avoid questions that would constitute advice.”

Campbell said it would be naive to suggest there was no risk of people not understanding the limitations on advice they were being given.

“One of the issues is that the way the legislation is set up in New Zealand includes  a degree of complexity. There’s class, personalised advice and categories of products who can provide advice on what. With complexity, there’s increasing risk.  The objective of the FAA review should be to drive more simplification.”

Campbell said there was no one silver bullet that would solve the issue of getting advice to consumers. “It plays into all the issues, commission versus fee for service… there is a mix of inputs to be considered.”

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