Self-regulation debate
A CALL for financial advisers to regulate themselves has sparked debate, with critics saying such a move could leave consumers at risk.
Former Tower Investments chief executive Sam Stubbs made the suggestion at a conference last month.
Financial advisers are currently regulated by the Financial Markets Authority. All advisers need to be registered as financial services providers but advisers providing investment advice need to be authorised, which requires certain qualifications and other requirements to be met.
Stubbs said advisers should have one industry organisation all advisers were required to join.
The industry body would have to be FMA-approved and work ‘‘in parallel’’ with the existing regulator, Stubbs said.
‘‘It’s like the difference between a policeman telling you you’ve broken the law and charging you and your family sitting around the table saying we need to talk about your morals and ethics,’’ he said.
Stubbs said self-regulation could improve consumer confidence in advisers and he said dodgy advisers were hurting the good ones.
He said advisers should regulate themselves as happens with other professionals such as lawyers and real estate agents.
However, last year’s Reader’s Digest New Zealand’s Most Trusted Professions survey suggests switching to selfregulation wouldn’t be a silver bullet for improving advisers’ reputation. The survey rated financial planners 39th out of 50 professions, with insurance salespeople 45th, one ahead of politicians and two ahead of sex workers. Real estate agents fared little better at a lowly 44th place, while lawyers were only marginally better at 37th.
IFA chief executive Fred Dodds said the industry couldn’t move away from regulation but it was littered with too many professional bodies and member and dealer groups.
The 750-member IFA and the 1200-member Professional Advisers Association have discussed a possible merger, said Dodds, who described the current situation as unstructured.
‘‘In a way the product providers would love to have one large association to deal with rather than a whole bunch of associations. The FMA would probably rather have one association representing everyone.’’
Private Asset Management director Brent Sheather said a move to self-regulation would lead to bad outcomes for consumers.
He said advisers couldn’t be trusted to regulate themselves because their business model was often in conflict with what was best for consumers. And he said history showed industry groups were often tainted by scandals and conflicts of interest.
‘‘It would just be a standard case of foxes in the henhouse.’’