Advisers see few benefits from meeting new regulatory requirements, wants Government to promote them

By David Yates*

It is now five years after the Financial Advisers Act was passed and two years since the regulations came into force.

Research commissioned by the New Zealand Financial Advisers Association (NZFAA) on almost 2,500 adult New Zealanders reveals the regulations have yet to deliver on its purpose.

The research (conducted on behalf of NZFAA by Horizon Research) reveals a significant gap between what the regulations set out to achieve and what has been delivered to date.

The main purpose of the Financial Advisers Act (2008) is to promote the sound and efficient delivery of financial adviser and broking services, and to encourage public confidence in the professionalism and integrity of financial advisers and brokers.

Disturbingly 79% of those researched were either completely unaware of the 2011 changes or knew only a little about the regulation changes.

This raises some serious questions about what the legislation has actually achieved and whether it may be time to look a little more seriously at how the benefits are being promoted.

With such poor or non-existent communication with end consumers, it is hardly surprising that the research also found that the 2011 changes showed no improvement in the public’s opinion of financial advisers.

If almost four out of five consumers are mostly unaware of the changes that have taken place in the last two years, it would be foolhardy to expect any meaningful transformation in the perception of financial advisers.

Despite the findings from our research, we are still extremely supportive of the need for regulations. It is the foundation on which public confidence needs to be built.

As a Professional Association, we require our members to meet standards in excess of those required by regulation.

But it is a point of concern that the costs and effort associated with meeting the regulatory requirements is undermined by poor promotion of the benefits of regulation to the general public.

Financial Advisers have already had the cost of doing business increased through additional education and reporting requirements, compulsory dispute resolution membership and the costs of registration.

We (NZFAA) see these measure as generally positive.

It’s now time for key players in the industry to look at how to educate consumers on the benefits of the changes that were originally enacted in 2008 and which came to force in 2011.

The FMA, in particular, actively supported by professional bodies have a key role to play here. Cost and resource constraints within the FMA are likely to be limiting factors to effective promotion the effects of regulatory changes in the sector.

However, the government invested significantly in the promotion of the recent partial float of Mighty River Power and will invest further funds in the upcoming Meridian float.

Even a small portion of that budget being earmarked for promotion of regulation would lead to tangible benefits in consumer confidence in the sector.

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David Yates is the General Manager of the NZ Financial Advisers’ Association.