Fund managers a growth opportunity for financial advice, FMA says

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Financial advisers will probably have an increasing role in intermediating between consumers and the funds management industry as it gathers strength, the chief executive of the Financial Markets Authority says.

Monday, February 29th 2016, 6:00AM 1 Comment

by Susan Edmunds

The FMA is going through the final phase of implementing the Financial Markets Conduct Act.

Managed investment schemes must have a license by December 1.

The FMA expects about 75 schemes will need a licence although some of the smaller operations may not go through with the process.

There have been 16 licenses granted so far and 30 other managers are in discussion with the FMA.

FMA chief executive Rob Everett said it was the last major piece of work for the FMA under the FMCA.

“Licensing is about instilling confidence in the industry by helping to manage provider conduct and monitor major risks across the sector. It is just the beginning of a transformation in the relationship between the industry and the regulator,” he said.

He said there was less and less direct participation by New Zealand retail investors in the equity markets and more people would start to turn to managed funds to invest their money.

He expected KiwiSaver to act as a bridge to other managed funds by familiarising people with what they did and the opportunities available. “As balances grow people will think about the investments they have in KiwiSaver and what else the might invest in that is similar, elsewhere,” he said.

“Financial advisers have an increasing role.”

He said advice would be increasingly important in situations such as when people withdrew their money from KiwiSaver and needed guidance on where to invest it. "How they might look at a managed fund is a component of that,” he said.

Everett said, without licensing, New Zealand had been an international outlier. “It’s good to close the gap. Fund managers have had plenty of time to get used to it. They are pretty much the last off the block. We have been engaging with fund managers for a considerable period.”

He said he did not expect licensing to pose a significant hurdle for most.

“But we want to raise standards otherwise there is no point in having a licensing regime.  Some have to put in place new systems, processes and governance that they might not otherwise have had. To the extent of a minimum standard barrier to entry we’re comfortable it’s very manageable.”

The FMA would use its increased engagement with fund managers to remind them to keep the consumer at the forefront of their minds, he said.

“We hope there is a place for financial advisers to help intermediate between investors who can’t or don’t want to know how it works and financial advisers who should.”

Pathfinder boss John Berry said the licensing process had been positive.

“While it has been very time consuming, it makes managers think deeply about their business, their processes and their controls.  The FMA has set minimum standards for systems, IT infrastructure and governance which can only be good for investors...  Before the FMCA anyone with an idea and the money to get started could set up a fund.  That is no longer the case, which is a good thing for the investing public. “

Tags: Financial Advisers Act Financial Markets Conduct Act managed funds Pathfinder Asset Management

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