Rest of industry gets taste of what advisers have been through

The rest of the financial services industry is starting to get a taste of the regulation financial advisers have been operating under for years, the Financial Markets Authority’s chief executive says.

Monday, October 5th 2015, 6:00AM

by Susan Edmunds

The FMA has released its annual report for the year to June 30.

It is the first under the new Financial Markets Conduct Act (FMCA) regime.

Chief executive Rob Everett said the new regulation was a culture change for many participants, although advisers had been working under regulation for years.

“I’m very conscious that advisers went first with licensing, when the legislative thinking was far less clear than it is with the FMCA.”

The FMA is now issuing managed investment scheme (MIS) licenses and discretionary investment management services (DIMS) licences to organisations such as fund managers and banks.

Everett said a lack of licensing had been one of the factors that made New Zealand an outlier by international standards before the global financial crisis.

But he said some participants could struggle with the level of engagement required with the FMA if it was their first experience of it.

“It’s a different relationship with the regulator than these firms have ever had,” Everett said.

The aim was for the FMA to be fully engaged and aware of what was happening across the market. “Not just interact when something has gone wrong.”

Advisers have had to decide over the past year whether they want to be allowed to offer DIMS under the FMCA.

Everett said the DIMS framework was complex and it had not been clear at the outset which organisations would apply for a license and which wouldn’t. “A few haven’t that we would have expected to.”

Just under 30 class licenses have been granted. Only a couple of providers have been approved to offer personalised DIMS.

Everett said that was lower than expected but he thought there could be more still to come.

The MIS licensing scheme was more straightforward, he said, and had taken lessons from the DIMS experience.

He said the FMA investigation into market manipulation at Milford Asset Management had increased providers' engagement with it.

“[It] put the cat among the pigeons a bit, they all came to the table keen to understand what to expect.”

Everett said a big focus for the FMA over the next year would be the Financial Advisers Act review. He said the initial work that has been done had been good for exposing the issues. “But in some respects that’s the easy part. We all knew the regulation was very complex and hard to operate under.”

The FMA would be working to ensure MBIE had options. “We’re not going to get a chance to do a review like this again for a long period. It’s important anything that needs to be changed gets looked at now.”

The FMA regulates 1845 authorised financial advisers, 6420 registered financial advisers and 26,000 QFE advisers.

The report says an area of concern is insufficient documentation of client goals and a lack of well-defined objectives and scope of service.

The FMA received 4763 queries in the year, up 76% on the year before, and 1051 complaints. Financial advice was responsible for 11% of complaints. Six per cent of queries related to the Financial Advisers Act.

The report shows 59 FMA staff earn more than $100,000 a year, including one earning more than $530,000.

FMA generated revenue of $30.2 million, while expenditure increased slightly above forecast to $32.7 million.

The deficit of $2.5 million for the year has been covered by accumulated funds.

Tags: financial advisers FMA