Financial product sales and advice still not up to scratch: FMA

Tuesday 17th November 2015

As few as three in a thousand people joining or switching KiwiSaver schemes are getting personalised advice when they do so, the Financial Markets Authority says in a new monitoring report that says finance sector sales and advice practices are still not up to scratch under a new regulatory regime.

The financial markets watchdog found inconsistencies in the quality and maturity of systems and the industry's practices in its sales and advice monitoring report, spanning the year to June. The FMA found a high degree of willingness among firms to meet their obligations under the new regime but said the sector was still falling short of the regulator's expectations in balancing conflicts of interest, promoting strong governance and culture, having adequate compliance systems in place, and providing consistent information for management.

"Good intentions are all very well, but firms need to hardwire into their core processes and structures the focus on the customer that we have been talking about," FMA director of regulation Liam Mason said in a statement. "We'll continue engaging directly with firms, through supervision and guidance, so they implement the right systems and effectively manage their new obligations."

Successive governments have been working to revive investors' confidence in the financial sector over the past decade, overhauling securities law to make investing easier to understand for retail investors while imposing stricter rules governing firms' behaviour and including advisers' professional standards.

The latest review was based on 47 site visits and the FMA's ongoing monitoring of the sector. It included data from 10 KiwiSaver providers covering 87 percent of the savings scheme's members.

The watchdog said it didn't find any systemic issues in the KiwiSaver provider data, but was concerned customers don't always receive the support they need or require. It found little advice was offered to consumers, with just three instances of personalised advice for every 1,000 sales or transfers undertaken and a reluctance among advisers to provide advice on the scheme.

On sales and advice practices, the regulator found training and support for staff was well-documented and monitored across a range of organisations, but individual advisers weren't able to demonstrate their compliance with continuing professional developments supervision to find unsuitable advice was informal.

The regulator also said many firms weren't able to demonstrate effective governance and a culture of compliance, while risks were generally focused on compliance obligations. and that there was a lack of oversight of frontline staff.

The FMA said authorised financial advisers largely took their obligations seriously, though it had referred two AFAs to the disciplinary committee, while brokers and custodians still failed to meet the regulator's expectations, despite showing signs of improvement.

The watchdog said it will step up its monitoring and supervision of sales and advice practices, particularly on areas posing a high risk to investors, increase engagement with boards and management to improve the quality of providers' systems, and provide more guidance on its expectations.

BusinessDesk.co.nz

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