Inside Money: Regulatory asks - what is an AFA?

For most independent AFAs, KiwiSaver advice is hardly worth the effort of scrutinising the offer documents of 30 schemes. Photo / Thinkstock

"Until now, only limited data has been available to the public about the shape and practices of the financial advice industry," begins the Financial Markets Authority (FMA) in its inaugural survey of the nation's Authorised Financial Advisers (AFA).

There was, of course, my ground-breaking August 2013 AFA study that the regulator neglects to mention - surely a sub-editing error.

But while my report was aimed at understanding who AFAs worked for or were associated with (which I would argue is the single-most important piece of consumer information), the FMA does an admirable job of delving into a range of underlying industry practices.

For example, the FMA gives a break down of AFA career experience, complaint history and what products they dabble in. As well, the regulator has quizzed AFAs on business models, client numbers, KiwiSaver preferences and remuneration methods.

The latter two subjects are particularly interesting to the regulator, and probably consumers too.

According to the FMA, about "13 per cent of AFAs are closely aligned to one product provider for remuneration". But given that in my study I found collectively banks, stockbrokers and AMP accounted for half of all AFAs, that 13 per cent figure looks remarkably low.

Kirsty Campbell, FMA head of supervision, admits there may have been differing interpretations of the question, which was phrased in the survey like so: "In the last 12 months, did you generate more than 50 per cent of your commission or production bonuses relating to investment products from one product provider in delivering financial adviser services?"

The regulator did say, though, it is looking "at remuneration arrangements that can lead to conflicted advice or sales, and whether firms have in place appropriate safeguards to prevent mis-selling".

The survey also found about 70 per cent of AFAs gave advice on KiwiSaver - albeit for the most part on a limited basis. Almost half of AFAs advised on a single KiwiSaver scheme and less than 5 per cent would consider five or more of the roughly 30 KiwiSaver providers in the market.

Again, this is hardly a surprising result when linked back to my AFA affiliation figures. And for most independent AFAs, KiwiSaver advice is hardly worth the effort of scrutinising the offer documents of 30 schemes.

"From a regulatory perspective, we expect KiwiSaver members to receive appropriate advice and support when they transfer, and we will continue to monitor this issue," the AFA survey says.

But as a previous FMA report highlights, most KiwiSaver members receive advice - if they get it at all - from bank employees acting under the auspices of the institution's Qualifying Financial Entity (QFE) status.

In fact, the majority of financial advisers - an estimated 20,000 or so - are QFE-controlled, and therefore fall outside the individual regulatory oversight of the FMA.

The regulator does police the QFE sector, though. Last September the FMA published its first QFE monitoring report , which includes the observation that: "Although QFEs have AFAs available to assist with KiwiSaver sales, we found that very few customers are being referred to them or have asked for this service when considering a QFE's KiwiSaver products."

The FMA is investigating QFE (read bank) KiwiSaver sales practices - and has also been following the recent Australian bank advice troubles - with a sequel report on the subject due later this year.