New Zealand’s Financial Markets Authority has urged advisers to address lapses identified in its review of compliance with the regulatory regime.

Some financial advice providers and their representatives have a limited understanding of the purpose and intent of the regime and take a “tick-box” approach to compliance, rather than looking at how their arrangements can achieve good client outcomes, an FMA report says.

“The consequence of this approach is that advice firms risk not achieving substantive compliance with the conduct and client care duties when giving advice.”

In a small number of cases, non-compliance has resulted in client harm, the report says. Some advisers did not take reasonable steps to ensure clients understood their advice; in some instances, advisers were unable to demonstrate that clients understood the nature and scope of advice before it was given; and some did not conduct sufficient needs analysis, or were making recommendations outside of clients’ risk tolerances without providing enough rationale.

In relation to commission and incentive disclosure, the review found instances where advisers gave “inadequate or inconsistent” information across client documents. 

FMA says the review aims to give advisers insights on ways to improve their operations. It covers the regulator’s monitoring activity from March 15 2021 to April 30 this year, which includes the start of a new advice regime on March 17 last year after a two-year transition.

“The insights in this report tell us that financial advice providers and financial advisers have made progress and have successfully transitioned to the new requirements,” FMA director of deposit-taking, insurance and advice Michael Hewes said. “We have also identified gaps that, if they remain unchecked, could escalate into poor outcomes for clients.”

He says the regulator will continue to act proportionate to the level of misconduct, including intensive supervision and formal regulatory steps where appropriate.

“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.”

Click here for the report.