With the recommended target date for FAP licensing applications (September 30, 2022) fast approaching, the Financial Markets Authority (FMA) have been issuing new guidance to help financial advice providers navigate their obligations, including record-keeping.
According to the regulator, poor record-keeping was an area of concern in the previous financial advice regime. And the FMA’s recent information sheet was a timely reminder of the importance of efficient and well-documented processes.
Knowing that many FAPs are adapting theirs, here at Financial Advice NZ we’re always available for any questions and to offer assistance where needed. Meanwhile, here are some thoughts and key points from the latest FMA guidance, to get you started.
Standard Condition 1 requires FAPs to “create in a timely manner and maintain adequate records” in relation to their financial advice service. Record-keeping is an overarching requirement that allows FAPs to demonstrate compliance to all other duties and obligations, including the Code of Professional Conduct.
In their guidance, the FMA emphasised the link between record-keeping and conduct obligations: record-keeping is about good conduct, and good conduct is about the client’s fair outcomes.
In other words, by keeping adequate records, advisers can prove that they provided their services with the clients’ best interests top of mind. It shows that they’ve taken steps to secure clients’ data, explain their recommendations, and provide well-researched advice throughout the six-step process. Good record-keeping keeps all the importance pieces to an adviser business together, while also helping build client trust.
Through their information sheet, the FMA reminded FAPs that they need to maintain adequate records of all regulated financial advice provided and how the financial advice duties have been met. These records must be kept for at least seven years, and be available for inspection.
Discussing their expectations, the regulator highlighted that record-keeping practices must align with the size and nature of the FAP, and regular reviews are also crucial.
Generally speaking, processes, systems and controls don’t need to be overly complex: for example, it could be a simple document outlining the information you’re capturing at different stages of the advice process. Whatever format you choose, it’s crucial to make sure that records are securely stored, and you must be able to demonstrate how data integrity is maintained. This doesn’t mean just a good lock on your front door, but up to date security and firewalls on all your devices.
Technicalities aside, the goal is to provide a comprehensive and well-documented ‘relationship’ history for each of your clients, by weaving record-keeping into the six-step advice process. Which brings me to the next point.
In its information sheet, the regulator offered some common examples of insufficient record-keeping, based on the previous financial advice regime. These included things like lack of internal policies, procedures and controls; insufficient evidence supporting the advice process; and insufficient records of discussions and agreements with clients.
The FMA then proceeded to offer some practical tips, including:
These are just top-level recommendations, of course; how you choose to apply them will depend on your business’s configuration. As always, remember: when it comes to compliance, you’re the one that knows your business and your clients best. Record-keeping allows you to show this.
As part of our ‘Bring In the Experts’ webinar series, last year we hosted a webcast focusing specifically on record-keeping, with compliance specialist Leigh Hodgetts. You can find a recording of the session in the Member Centre of financialadvice.nz, under ‘Learning, Education & Compliance’.
Many practical tips were shared, including what the seven years cut-off actually means.
One of the comments the stood out for me at the time is that documents need to ‘talk’ on their own. We know that advice is a relationship – and often a longstanding one. But no matter how well you know your client, and for how long they’ve been working with you, detailed record-keeping is always essential.
The regulator doesn’t know the client, only you do. They want to see that you’ve taken all the necessary steps to ensure that clients understood your advice, any fees or commissions, and any material conflicts of interest. The important thing, at the end of the day, is to keep the whole process simple but relevant to what you do. And that is, helping people build and protect their financial future.
Financial Advice NZ was founded with a single-minded purpose: to help New Zealanders, and New Zealand as a whole, be financially better off. Visit financialadvice.nz to learn more about our initiatives.
