3 Easy Ways to Learn to Love Compliance, Regulation, and Financial Services Legislation

Since the regulatory regime for financial advisers in New Zealand went live, there have been mixed responses to the experience. Compliance Week

Many advisers felt that they had been conned into seeking authorised status early, and were highly annoyed when the initial stance from government that "all advisers must subscribe to a minimum qualification standard"  gave way under pressure from large institutions to the introduction of QFEs.

Recent announcements from the FMA turning their attention to the behaviour of these Qualifying Financial Entities will create some interesting reading material, I'm sure.  

Whatever the outcome of the investigations, Authorised Financial Advisers offering advice on category 1 products, and all other Financial Advisers for that matter, have their own issues to address in meeting the standards set out in the legislation.

It's worth remembering that the legal instrument governing the regulatory environment is silent regarding the distinction between RFAs and AFAs. In fact, authorised status does not appear anywhere in the text of the Financial Advisers Act 2008, but the duties and obligations of all financial advisers to pay proper care and attention to clients is explicit, but it's not the focus of this post.

Some of you may have caught the Article (below) in Saturday's Herald - interesting reading, but I question the assertion that disputes are so few in number because 'thousands of advisers quit the industry' or that there is a 'disconnect' between adviser behaviour and FMA expectations. There is no empirical evidence that I can unearth to substantiate these claims, but it does provide an indication of media attitude toward non-AFAs - honest or otherwise, you're all tarred with the same brush.

And this is the central issue with the legislation as it sets standards for the lowest common denominator, rather than setting a standard for professionalism. 

Merely stating that all advisers should look after their clients honestly, without making misleading statements blah blah blah is only what every sensible adviser does anyway - but that's hardly a standard to which the adviser industry and its membership should aspire - so here's the Lairds 3 suggestions for generating a healthy caring relationship with the regime;

1. EMBRACE REALITY - THIS STUFF ISN'T LIKELY TO GO AWAY. If the U.K. and Australia experience is anything to go by, regulation is here to stay - so get used to it and find ways to turn this to your advantage. Sorry, but the obvious conclusion is that AFA status provides value-add for clients AND for advisers. Having a fully compliant sales process, documented every step of the way, has proved to generate more business for advisers, provide better more comprehensive financial protection solutions for clients, and created potentially longer-lasting relationships between the parties. We proved this in practice at a previous post the Laird held - details on request - phone 0220606117 anytime .

Accept the presence of this factor in your everyday business - it's here to stay.

2. TAKE A PROACTIVE PART IN INFLUENCING THE FUTURE SHAPE OF REGULATIONS.  The legislation has had time to settle in and some stakeholder reaction and feedback is due. For example, The Laird does not believe that the product-driven categorisation of permitted adviser behaviour is appropriate. Recommending a government stock investment to a wealthy investment client carries infinitely less risk than the incorrect design, development and installation of a complex multi-director share protection scheme. If the former activity fails to deliver for some reason, the consequences are trivial compared with the potential financial disasters facing clients should the latter case be executed incorrectly. This distinction based on product complexity is wrong-headed; the distinction should be based on the complexity of product application.

If you agree, or have another similar view on the regulations - stand up at the next PAA, IFA, Sifa, LBA or whatever adviser group you belong to and say so!

3. SEEK INPUT FROM OTHERS AND SHARE THE EXPERIENCE. I noticed my old mate Angus Dale-Jones copping some flak for reminding the Good Returns readers that he was ready, willing, and available to provide services for advisers. Sorry, giving Angus a hard time is just plain dumb. If there's anyone in NZ who is qualified to provide an insight into the regulatory thought process, it's Angus. After all, he was there when his boss, Jane Diplock (referred to internally as "Plane Jane" due to her penchant for flying, not her appearance) was leading the regulatory charge. Barry Read offers a similar service and conversations with these guys will provide a more intimate perspective and better understanding of the rationale and practical implications of the regulatory environment.

Pick up the phone and speak to these guys - you'll be surprised how much easier it is to have a conversation with them than it is with absolutely anyone employed by the FMA.

Of course, if you know it all and have nothing else to learn about the financial services industry, regulation and compliance, then don't bother - your sorted.

Yeah, right.

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The Laird of Albany

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