Review of the FAA.....

I do not believe right-minded participants in our industry object to regulation. Indeed this provides a measure of legitimacy for those who see the benefits of proper governance of the sector which were previously absent in many quarters. I also believe that many commentators, observers, and industry figures would agree that the framework promulgated by the FAA needs to be reviewed, revised, and yes - fixed.

Starting all over again suggests disregarding the progress, expense, and effort which has gone into the early stages of the NZ regulatory environment, and would, I suggest, be counterproductive, and represent a severe disincentive to all parties involved.

So if I may offer my 10 cents worth, the imminent review might focus on issues including - but not limited to -

1. The suitability of demarcating adviser functions by so-called product complexity is inappropriate. Anyone and everyone I've spoken to on this issue acknowledges that this approach is flawed. Life risk products are more complex in their application, and can cause untold damage to companies, industry, families, and the community at large, if incorrect usage occurs. Losing $10k of a millionaire's investment funds through poor investment advice is no more than an inconvenient irritation to that client. However, incorrect handling of a Directors Protection Plan, which includes the use of life insurance and related risk covers, can cause bankruptcy, liquidation, unemployment, and untold financial hardship. This is not an argument for raising or lowering standards, merely that standards be made uniform whatever they may be, and that there is no delineation based on product usage, recommendation, or application. It is also an argument for abandoning the inappropriate QFE status which has steadfastly failed to deliver the desired results of enhancing confidence in the industry, and/or of delivering appropriate practices in the advice and sales practices space.

2. Educational standards and professional qualifications are not a panacea guaranteeing appropriate behaviour and the delivery of best practice. Indeed, they have been the cloak underneath which many white-collar criminals have concealed their nefarious activities. Nevertheless, achieving a certain minimum standard of relevant (not vaguely related) education and qualification should be mandatory. Those minimum standards should be set and implemented by industry consultation and consensus. I would contend that the contemporary definition of a profession is a vocation entered exclusively by tertiary level examination, assessment, and evaluation. The financial advisory occupation is not a profession and referring to it thus does not make it a profession. Accounting, Law, Architecture, Medicine, etc., are all vocations where individuals must display a tertiary level of qualification before being allowed to practice. While a transition to this status will have to be contemplated, there is no advantage in delaying, avoiding, or postponing progress because of commercial reluctance, perceived complexity, or lack of political will.

3. In embarking later on a regulatory regime design, NZ avoided the several pitfalls encountered by the British and Australian authorities. Nevertheless, there is an alarming tendency in NZ to mimic the culture, activities, and posture of other regulators, in particular those of ASIC. New Zealand has a unique opportunity to lead the world in effective regulation by developing collaborative interaction which sees those regulated advocate strongly in favour of the regime, without conceding one iota to capture theory or being accused of pandering to the big end of town. The Australian regulatory experience, while better than nothing at all, has been pretty average. From the failure of the Toll Patrick action against Citigroup, to the present raft of Enforceable Undertakings, fines, and prohibitions, the adversarial nature of the regulator has done little or nothing to protect the end-user, or to prevent (rather than cure) malfeasance. Of course, everyone acknowledges that it is impossible to legislate criminality out of society. But it should be possible to create the culture within a regulatory environment which presents both remedial and preventative measures. Remedial measures apply after the event, while preventative measures should be combination of incentive and requirement. At present, there is little incentive to embrace regulatory compliance, only the prospect of punishment in the event of non-compliance. I submit that this regime has to be changed to secure willing buy-in from those regulated, and that a cultural shift has to be effected away from the 'town sheriff' style mentality.

Doubtless, there are many other areas of contention which other more able, eloquent, and influential commentators will present, but I suggest that if these three areas were addressed successfully, we would be in far better, stronger, healthier, vibrant industry than has been created thus far.

Slainte Mhor

The Laird