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Financial advisers face new 'customer-first' obligations

Wednesday 13th July 2016

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All financial advice will have to put the interests of the customer first in Commerce Minister Paul Goldsmith's proposed update to the five-year-old framework. 

Goldsmith plans to do away with the current adviser designations which he says have been "unsatisfactory" in that some advisers are obliged to disclose potential conflicts of interest and act in their customers' best interests, but others are not.

Under the current regime, Authorised Financial Advisers have 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. 

The AFA, RFA and QFE adviser designations will be replaced by two tiers: advisers, who are individually accountable for meeting their obligations; and agents whose employers are accountable. All advice will have to meet standards set by a code of conduct, which means they'll have to put their clients' interests first and disclose whether they get paid for selling a particular product. 

"The purpose of this change is to be more confident around that and to simplify it," Goldsmith said. "Financial advisers, regardless of what they're offering, will need to follow a code of conduct and put the interests of the customer first." 

The government kicked off a review of the Financial Advisers Act and Financial Services Providers Act in March last year. The Ministry of Business, Innovation and Employment found the two-tier system needed to change as it was confusing customers who didn't understand that some advisers didn't have to act in their best interests. 

Goldsmith wants the changes to build on the earlier legislation, stimulating more engagement from the wider public with financial markets, especially as savings in KiwiSaver accounts build.

"It's incredibly important for New Zealand as a whole for New Zealanders to have discussions about where their KiwiSaver funds are and what's an appropriate place to put them," he said. "I want to make sure the financial advisers' regime isn't putting barriers in front of those conversations unnecessarily."

The proposals will also license firms rather than individuals, which Goldsmith said will cut compliance costs. The Financial Markets Authority will consult on how those fees are set. 

The updated regime will lean on the Code Committee for Financial Advisers to develop the code of conduct, including what competency standards advisers will have to meet. 

Goldsmith said he hopes to have legislation in Parliament before the end of the year and would expect a transition period for the new regime.

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