1. Compliance
  2. Authorised Financial Advisers
  3. What we look for in our monitoring

What we look for in our monitoring

Page last updated: 21 Feb 2019

Are you putting your customers first?

On the basis of early monitoring reviews (May-October 2011), FMA has developed the following hints and tips for AFAs.

They provide examples of the behaviours, information and processes we will be looking for in our monitoring reviews. Please note, they do not cover all aspects of an AFAs obligations. Please also see the AFA Monitoring Reports.

Advice or service?

What's more important - process or outcome?

  • We will look whether the advice or service provided was suitable for the client. We have asked advisers to justify the outcome - and to revisit and amend for the client where the result doesn't appear reasonable.
  • To do this we look at electronic and paper-based documents - so if there is no process or little documentation, it's difficult for FMA to judge whether advice is suitable.
  • But we see process as a means to the end - not the end. Having a suitable client outcome is the end point.
  • Fact-finding notes
    • Write it down. Make sure you've documented how you got to the conclusions you reached for your clients.
    • Remember fact-finding applies to existing clients too. File notes about how you've kept up to date with their situation and why you've made changes are important.
  • Advice processes
    • Explain the processes you follow. If you follow a 'six-step advice process' what does that mean in your business - that is what practical steps do you take to perform each step?
    • Show how you vary your advice process for different types of products and client circumstances.
  • Written records of advice (Statement of Advice)
    • Make sure your 'Statement of Advice' clearly shows your client what's been recommended - and why.
    • Use language your client will understand to explain what has been recommended
    • Make sure you understand what you're recommending
    • Describe both the benefits and risks
    • Don't bury fund fees and fund details in technical appendices - costs are important to your client and to your advice
    • Where advice is given to switch, clearly quantify the costs and benefits of disposing or retaining. You are probably providing advice on the sale as well as the purchase.
    • Make it clear who the client is when giving advice to a trust
    • Make sure that if you limit your advice you clarify exactly what you will do and won't do.
  • Ongoing service
    • As above - document what you do
    • Make sure that if most of your business is existing clients, your ABS reflects this eg describe advice process for existing clients, not just new clients
    • For Discretionary Investment Management clients, record sufficient information to show how your decisions under the client mandate and implementing those decisions have been suitable for your client
  • Risk
    • Make sure your client understands the risk profile they've been assessed as and what this means for the investments you recommend. A tip: make sure your client understands the risk profile options and terminology you use, for example, they need to understand that 'balanced' is more risky than 'conservative' and less than 'growth' if these are the terms you use
    • Sense check the results provided by risk profiling/tolerance tools - can your client actually afford the risk the tool has described? Are there glaring differences in the answers a client provides on different questions?
    • Make sure any risk tools you use are based on factors suitable for a client's situation

Show us your professional development plan

  • Show how you've identified what is required to maintain your competence, including maintaining up-to-date product knowledge
  • Describe how your structured and unstructured training opportunities are relevant (eg is attending an association roadshow relevant for your needs?)
  • Use your PDP to describe what your current development plans are. Use your ABS Competence section to describe how you develop your PDP.

Are you clear about what products and services you provide?

  • Financial adviser services
    • In your ABS, describe the services you most frequently provide or specialise in
    • If you're not currently providing a service you're registered for, just note this in your ABS. But it must be referred to.
  • Products
    • In your ABS, go beyond describing your products as just 'category 1 and category 2' products. Describe the types of products and services and approximate proportions of work you do in each to make it clear the areas you are active in. Your processes need to address different product types
    • Check back against the descriptions and terminology in the Financial Advisers Act. For example 'Broker' and 'Discretionary Investment Management' have specific definitions in the Act. That's what FMA will be monitoring against.

Disclosure - when and how

  • Tailored secondary disclosure documents are essential. Explain how and when these are provided to clients, so they understand the cost of the advice.

How you handle complaints and conflicts of interest

  • Check the processes you describe are what's required in Code Standard 11
  • Make sure you recognise and consider all types of conflicts of interest
  • Commission payments are one potential conflict of interest, but potential conflicts also occur with fee based models based on funds under management - for example the adviser benefits if the client invests, and the more invested, the bigger the 'benefit'.

ABS tips

  • If you're using a template, make sure you personalise it to what you actually do. And don't leave in example text that describes services you don't provide or processes you can't demonstrate.
  • Remember, what we are looking for is a clear picture of how you meet your obligations

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