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[Weekly Wrap] The verdict from AFAs

Friday 21st of December 2012

Good regulation should be consumer-focused but industry-driven and it is good to see the FMA is looking to work with AFAs to address their concerns about the regime.  Some financial regulators overseas have an almost antagonistic attitude towards those in the industry they control, but it seems the FMA understands that advisers are in the best position to assess how regulations actually affect consumers, not to mention their own businesses.  And one of the takeaways from the survey is that many AFAs have changed how they do business as a result of the regulations.

The worrying aspect for all concerned is that low-end investors are missing out on advice.  This shouldn't come as a surprise as one of the predicted consequences of regulation was that it would raise costs for advisers, therefore making advice more expensive and difficult to access for consumers, particularly those with no assets on low wages who can't afford to pay large up-front fees.  What needs to happen is that now the regulations are in place and people have ticked the boxes, the focus shifts from implementing the regulations to working out how to make them more consumer and adviser-friendly.  One aspect of this is making sure all the paperwork requirements are proportional to the type and amount of advice being given, so that AFAs don't have to, for instance, spend four hours helping someone pick a KiwiSaver scheme.  But whatever happens, banks are likely to remain the biggest source of financial advice/information for low-end investors and there are still some big questions about the quality of advice being given by these companies.

QROPS advisers and providers have had an eventful year but next year looks to be a quiet one, with no significant changes being introduced to the governance of pension transfer schemes.  This is good news as QROPS faced significant disruption as a result of these changes, not least of which because it was virtually impossible to comply without breaching New Zealand law around trust deeds.  It was disappointing New Zealand providers were singled out with the 30/70 rule, particularly given other countries are now doing exactly what New Zealand was targeted for.  Why doesn't the HMRC apply that rule to every QROPS country?

Meanwhile, investors in Ross Asset Management have questioned whether the FMA has a "conflict of interest" in its on-going involvement with the company.  I don't think you could argue that without arguing the same for every regulator in a similar position.  Regulators by nature are monopolies and at times will have to play poacher and gamekeeper simultaneously.  If PwC does a bad job they can be replaced by another company but if FMA is taken off the case, who will replace it?  The important thing is that it is open and transparent and to date the FMA has been pretty honest in admitting that Ross slipped through the net.  Pretending that regulators can stop every act of financial chicanery can do as much damage to investors as having a dishonest marketplace, by instilling complacency that can preclude due diligence.

In other news this week, Public Trust is exiting the home loan market, OnePath has simplified its insurance writing process and a settlement has been reached in the Credit Sails fiasco/debacle/disaster (whatever you want to call it).

Have a merry Christmas and we will have some stories running on Good Returns over the holiday period if you need some light reading!

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