Most Read Contributor in New Zealand, September 2016
The Financial Markets Authority (FMA) report for the
June 2014-2015 year on Authorised Financial Advisers
(AFAs) and salespeople finds that - while compliance with
the expectations of the Financial Markets Conduct Act
(FMCA) and the Financial Advisers Act (FAA) is
good - there is room for improvement.
FMA is satisfied that the vast majority of AFAs are committed to
taking their obligations seriously and has indicated that it will
continue to pursue constructive engagement rather than a
sanctions-based approach, although it will intervene where
necessary - and has referred two AFAs to the disciplinary committee
as a result of issues identified through its monitoring role.
It has identified four broad themes for attention.
Putting the customer's interests first
FMA says that, while it saw some excellent practices, many
businesses were unable to demonstrate how they balanced conflicts
of interest (e.g. staff incentives vs customers' interests) or
how they helped customers to make an informed decision based on a
product's risk profile.
In some cases, the documentation in a customer file focused only
on the benefits of the financial product being advised on.
Financial advisers must provide a balanced risk/benefit analysis of
Governance and culture
Many businesses could not demonstrate how the 'tone from the
top' influenced firm culture.
FMA expects directors and senior management to have a sound
understanding of the key risks faced by the business, particularly
those relating to sales and advice. The board should verify that
the business has appropriate processes that identify and manage
potential and relevant risks.
Further, FMA found that good policies were not always reflected
in good processes and staff did not always understand the value of
Many businesses lacked comprehensive systems to ensure
compliance, and there was often a lack of oversight over the
suitability of decisions made by frontline staff.
FMA expects organisations to have formal procedures designed to
find systemic issues and deal with them. This should include staff
training, and may also include listening to calls, sampling calls,
sampling files, and monitoring sales processes.
Supervision and reporting
Recording and reporting of information was inconsistent. In
particular, few KiwiSaver providers collected and recorded useful
data on sales or transfers (including whether those were
'information-only' or with advice) and reports to
management were mostly preoccupied with sale volumes.
The findings are based on 47 separate site visits during the
year, as well as desk-based reviews, across banks, insurers, fund
managers, trustee companies and individual adviser businesses.
FMA also reviewed data from ten KiwiSaver providers, accounting
between them for 81% of KiwiSaver members and 75% of funds under
management. This showed that for every 1000 sales or transfers,
only three were recorded as having been sold with personalised
The FMA notes that many KiwiSaver providers have found its
October 2012 guidance on the sale and distribution of KiwiSaver and
on the use of personalised advice to be impractical. It has
undertaken to review this advice early in the New Year to ensure it
reflects the reality of how people engage with KiwiSaver and to
ensure that providers have a clear understanding of the FMA's
Industry will welcome this initiative, although it will be
interesting to see how it ties in with the broader review of the
FAA regime which is now underway (refer Chapman Tripp's
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