Regulator, shareholder lobby welcome customer obligation for financial advice

Wednesday 13th July 2016

The Financial Markets Authority and New Zealand Shareholders' Association are welcoming proposed changes that will mean all financial advice will have to put the clients' interests first.

Commerce Minister Paul Goldsmith today announced proposals to streamline the various adviser designations and impose a blanket obligation for all advice to put the customer first, which he says will fix an "unsatisfactory" regime where only some advisers are obliged to disclose potential conflicts of interest and act in their customers’ best interests.

FMA chief executive Rob Everett, whose organisation oversees the industry, said the existing regime approached things "from the product and provider perspectives which were very challenging for everybody". He's pleased to see the proposed changes will put the customer at the heart of the regime.

"The levelling of the playing field, so different types of advisers are subject to a minimum standard of conduct, minimum standard of competence that will hopefully, over time the quality and fair disclosures of advice goes up right across the board," Everett told BusinessDesk. "Hopefully, it will enable more people who probably ought to be taking financial advice of some description, even if it's quite simple advice, to get advice because actually there's a regime that protects them."

NZSA chairman John Hawkins also welcomed the requirement to put clients first, saying the proposals should simplify requirements and reduce costs, making it "easier for a wider range of people" to access financial advice.

"The new requirement that all advisers and agents must put the needs of the client first was a key step," Hawkins said in a statement. "Recent FMA research around policy churning in the insurance sector showed this was long overdue and gave the lie to any claims to the contrary."

The details of the amendments are still to be worked out, and Goldsmith intends to go back to Cabinet by September with a view to introducing legislation before the end of the year.

The Ministry of Business, Innovation and Employment's regulatory impact statement on the proposals predicts consumers will benefit from a simpler regime that provides access "to more accurate, useful information from advisers including details of conflicts of interest" and "a range of business models, with more tailored conditions".

The different adviser designations confused customers with Authorised Financial Advisers required to meet certain education and ethical standards to sell more complicated products, whereas Registered Financial Advisers need only to sign up to register to sell simpler services, while staff at qualifying financial entities, such as banks and fund managers, are covered by their employers.

Those will be will be replaced by two tiers: advisers, who are individually accountable for meeting their obligations; and agents whose employers are accountable.

MBIE anticipates minor costs for AFAs and QFEs to transition to the new regime, while RFAs will face a bigger bill in meeting new competency standards and making disclosures where previously they haven't.

The ministry is unsure what impact that will have on the number of advisers in the industry, which currently sits at 1,860 AFAs, 6,400 RFAs and 23,000 QFE advisers. It estimates the changes will leave between 3,000 and 8,000 advisers, and 20,000 to 25,000 agents.

BusinessDesk.co.nz

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