Financial services sales and advice not up to scratch – FMA

See also: FMA surprised at poor reporting at financial services firms

New Zealand’s financial services sector has been found lacking by the Financial Markets Authority.

In an inaugural report monitoring sales and advice practices within the financial services sector, the FMA found inconsistency in the quality and maturity of systems, and the practices used across the industry.

This covers financial advisers offering managed funds, KiwiSaver, futures contracts, insurance, term deposits and mortgages.

The FMA found a lack of comprehensive governance systems and insufficient reporting to senior management on sales and advice outcomes, and found inconsistent attention to managing conflicts of interest in sales and advice practices.

The regulator highlighted there was inadequate care to ensure consumers have access to appropriate information and advice, relative to their specific needs and the types of products on offer.

This was cemented by a lack of comprehensive compliance systems which could make sure firms are addressing all sales and advice regulatory and conduct risks.

The study comes in the wake of the Financial Markets Conduct Act, which came in at the start of last year. This binds financial services firms to a stricter code of conduct, particularly in regards to duty of care to customers.

Despite finding there were many aspects of sales and advice not up to scratch, FMA director of regulation Liam Mason says there is a “high degree of willingness” among firms to meet their obligations and adjust to the demands of the new legislation.

However, “good intentions are all very well, but firms need to hardwire into their core processes and structures the focus on the customer that we have been talking about,” he says.

The FMA accepts it may take a few years before financial services sales and advice meets the regulatory demands.

“We recognise we are part way through a transition period to the new regime,” Mr Mason says.

“We’ll continue engaging directly with firms, through supervision and guidance, so they implement the right systems themselves and effectively manage their new obligations.”

The review was based on 47 site visits and included data from 10 KiwiSaver providers covering 87% of members.

The FMA intends to step up its monitoring of sales and advice practices, especially in areas that pose a higher risk to investors.

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