Joining me now on the Good Returns TV studio is Melanie Purdey. Melanie first came to light, I guess, with us when she was the chief executive of New Park. And now you're working as an advisor advocate. Is that right?

Well, I don't know if I'm actually working, I'm trying to make a contribution.

And that's why we invited you in here because I read a great piece you wrote called FAP or Fiction. Tell me, if you were an advisor and you're looking to join a FAP, what would be the key things that you're looking for?

I think that's a really important consideration for advisors right now, particularly because a lot of groups are looking at bringing people under their FAP. And interestingly and ironically, I was listening to a webinar where they've recently coined a term "contagion risk", which is something we'd kind of cottoned onto last year about when you're part of a FAP, one of the key issues that you potentially expose yourself to is that FAP being curtailed in its activities because perhaps there's a renegade advisor who maybe isn't conducting themselves in the way that the regulators need to. And the question advisors really need to ask themselves is, how well prepared is the FAP that I'm going to be part of, or my own, if I'm planning to run my own, to actually ensure that I am safe? That they do have control of the place.

That's a really interesting thing. It's like, how do they check it? And that's a point I made the other day is, this advisor from AFA got told off by the FMA for telling you want to go to conservative funds. If that person was on a FAP, what would the FAP have done?

And that's a really good question that advisors need to ask. Because if the FAP you are part of should be shut down, you no longer are able to actually go out and earn your living, at least for the period of time under which it's under investigation or controls are put into place.

Now we've got one of the life insurance providers paying the overrides to the FAP, which has given me advice, do you think that's going to change the model of the dealer groups and what advisors will do?

Yeah, I think absolutely. And look, not necessarily in bad ways and good ways, but I think all of us need to hold each other accountable for what that's going to look like. I don't think that the support that providers are going to be offering-

Providers as in life companies.

... Life companies, is going to be without some kind of expectation that the FAP, whether it's a dealer group or your own, is going to have to demonstrate some accountability in some core areas. And these aren't anything new. These have been around for a while.

But the company which has gone down that track has already done that within [inaudible 00:02:43] and stuff, and how that works is going to be interesting. Do you think other companies will follow suit?

Ah. Watch the space. That's a really good question because I think there is still the argument about what will induce good conduct and what could potentially compel poor conduct. And I think we'll probably see over the next two years of the transitional piece, what sort 

Because we're talking about quite significant sums of money because on piece you wrote, you said if you wrote $100,000 of API in a year, your dealer group would be getting like 30K?

Yeah. And I think as an advisor you've got to ask yourself, especially if that's not going to you as the FAP, because you're under somebody else's FAP, what value am I getting for that? Because that's money that would otherwise come into my business and maybe I could be putting some of those systems in place, so am I getting the culture or the controls, the services, the systems, that I need to ensure that I'm not only fulfilling my obligations, but that everybody else in that FAP license holders group is also doing the same.

I was quite surprised at that number because to me 30K was quite a lot. And if I got 30K to help run my business, I could do a heck of a lot with that. I mean, just getting a few webinars and the conference isn't necessarily going to stack up.

And that's back to my earlier point. I do think that the groups, the providers that are offering those kinds of support to FAPs are going to be expecting some documentation or accountability or demonstration that you're actually delivering in all of the areas.

Do you think that dealer groups have been delivering that sort of value to their members?

Look, I think in varying degrees. I think at the core, when I consider sort of the main things around capability and controls, some communication and conflicts, all that kind... the basic five areas that have often been talked about by the regulators, I think there are those who have done parts of them really, really well and others who are still evolving their understanding and their capabilities in those areas. And I think that's what the two-year transitional period is for because we're all working out what it is to be a FAP.

Yeah. Do you have a recommendation that you'd give to advisors around which route they should take?

Not at this stage. Because I do think a lot of advisors very much just really want to do what they do well, and that is really look after their clients well. And they're quite happy to hand over the governance and the process and system documentation to somebody else. And I think that's fair. I don't think that there's a real issue in that. But you want to ask yourself, are they doing it in a way that I know I'm going to be safe?

And to be fair, the article I wrote about FAP or Fiction was born of a conversation I had with my husband, who is a broker under one of the groups and I was challenging him. They've already agreed they're going to go under that FAP. Have you actually asked them what they're doing? What controls they have in place to ensure that advisors are actually doing what they need to be doing?

I've been quite surprised that we got this close to the end game, if you like, where the decisions had been made. And a lot of groups across both mortgages and insurance hadn't actually put their proposition to market, and some I'm not sure they still have.

Yeah.

How hard does that make it for an advisor to decide which route they should be taking?

Well, I think it makes it extremely hard. And a lot of advisors because they are so busy looking after their clients haven't really thought about the key areas that they really need to be asking of their groups, their support groups, to ensure that they're going to be okay. It is back to that education piece, what should I expect as an advisor from my FAP?

And you also talked about, just to wrap up culture, how important is culture? And how does an advisor sort of determine the culture of a group?

I think it's very easy to see if the culture of the group you're with is one that really believes in client interest and advisor interest, whether they're really invested in supporting their advisors and whether they've actually embraced and communicated the same values that you have as an advisor. Who do they make their heroes? Who are the people who are lauded in that business? Are they the moneymakers or the people who are doing a really damn good job helping New Zealanders get great financial advice?

Yeah. That's a great place to leave it and that's a great answer. Thank you very much for that, Melanie.

Thank you.

Great to have you in the studio.

I appreciate it. Thank you.