Disclosure won't stop the scandals

Proposed rules that will attempt to tame the financial advisory sector are being churned out by the Government, hurrying to get the new regime in place for next year.

The latest discussion paper emerging from the bowels of the Ministry of Economic Development (MED) lays out plans for one of the most important aspects of a regulated financial advice industry - disclosure.

As Good Returns reported, the MED is calling for submissions on its proposals that will demand a much higher level of disclosure from financial advisers - including remuneration, conflicts of interest, previous convictions, education, what services they can provide etc...

Many advisers will dread the introduction of the disclosure rules, not so much because they prefer operating in secrecy but because of the administrative burden and legal risk the rules may impose on them - all those forms they've got to hand over to clients in the right order.

The same thing happened in Australia when new disclosure rules were introduced in 2000. Advisers hated it at first before begrudgingly adjusting to the rules; they got used to distributing 100-page disclosure documents that no-one bothered to read.

New Zealand authorities say they have learned from the Australian experience and will demand shorter, simpler disclosure documents from our advisers.

Disclosure is a good thing but only if consumers take advantage of it.

Australian advisers have been disclosing everything for years but that hasn't stopped the scandals stacking up: Westpoint, FinCorp, Opes Prime, Storm Financial, Timbercorp, Great Southern etc... I might have missed a few.

A recent survey of over 200 fund managers that I"m currently poring over makes a similar point about the US market.

"America has lots of regulation. Yet, it is there that many financial scandals have risen. Fresh regulation or a stricter interpretation of the existing one risks adding costs and shutting the stable door after the horses have bolted," the report says.

"On the other hand, [regulation] is inevitable, unless asset managers tackle the hidden abuses that exploit clients' low financial literacy worldwide."

Even Bill English agrees.

 


David Chaplin

 

 

Photo/ Martin Sykes