FMA’s first monitoring report highlights gaps and strengths in financial sector

FMA’s first monitoring report highlights gaps and strengths in financial sector | Insurance Business New Zealand

Insurance News

FMA’s first monitoring report highlights gaps and strengths in financial sector

Advisers emphasise sector’s role in guiding Kiwis through financial complexities

Insurance News

By
Roxanne Libatique

The Financial Markets Authority (FMA) – Te Mana Tātai Hokohoko – has released its first monitoring report evaluating the new financial advice regime.

The Financial Advice Provider Monitoring Insights report reviewed how financial advice providers (FAPs) have adhered to the obligations and licensing requirements introduced during the 2021 transitional period, which became fully effective in March 2023.

“The FMA is generally encouraged by the way licensed FAPs have made progress at this early stage in the new regime. We wanted to provide a broad range of insights on good practices, and areas where FAPs can improve. The FMA found those FAPs showing an understanding of their obligations were able to deliver on the regime’s purpose to support their clients’ interests, enabling access to quality advice. As the regime matures, we expect entities’ understanding of their regulatory obligations to mature and be reflected in their practices. Our approach to supervision will strongly reflect this expectation,” said Michael Hewes, FMA director of deposit taking, insurance, and advice.

Key findings

Providing suitable advice

The report found that advisers generally supported the requirement to provide suitable advice through comprehensive product knowledge and understanding of clients’ backgrounds.

Many used tools or checklists to assist in providing suitable advice. However, some advisers did not demonstrate reasonable grounds for ensuring their advice was suitable, often due to insufficient needs analysis or product comparisons.

Prioritising clients’ interests

Most advisers focused on prioritising clients’ interests, with good processes for replacement business advice.

However, there were instances where advisers switched clients to products with higher commissions without demonstrating prioritisation of clients’ interests.

Disclosure

Many monitored FAPs had clear, publicly available disclosures, covering complaints processes, dispute resolution schemes, and potential fees. Some gaps included a lack of detail on commissions and incentives, untimely disclosures, and missing complaints information.

Compliance oversight

Few FAPs took a proportionate approach to compliance oversight. Several reviews found deficiencies in both the design and operation of compliance oversight processes.

“In those instances where compliance was either poor or complacent, the FAPs ran the risk of delivering poor outcomes for their clients. In some of the worst cases where we saw client harm, this has led to formal regulatory intervention, including public censures. Some FAPs also had a limited understanding of the purpose and intent of the regime and took a ‘tick box’ approach, rather than looking at how their arrangements can achieve good client outcomes. The FMA encourages all FAPs to read the report and think about ways they can incorporate the insights and make improvements to their operations,” Hewes said.

FANZ welcomes report

Financial Advice New Zealand (FANZ) has acknowledged and welcomed the FMA’s report.

“Financial advisers also play a role in educating and helping clients understand the strategy and products that are being recommended to them. Informed client consent is essential in building consumer confidence in the financial advice sector. Research shows that when clients work with a trusted adviser, they enjoy a higher quality of life, more financial confidence, and experience less financial stress,” he said.

FMA’s first monitoring report highlights gaps and strengths in financial sector