It's real; Financial adviser reforms are go

The Government has pushed the go button for significant reforms to how financial advice is delivered in New Zealand. This evening the Financial Services Legislation Amendment Bill has had its first reading in Parliament and now goes to Select Committee.  

The bill has been sent to the Economic Development, Science and Innovation Select Committee. All of the MPs who spoke at the first reading supported it.

Commerce and Consumer Affairs Minister Kris Faafoi said financial advice had an important role to play in New Zealand and good advice could bridge the knowledge gap between consumers and providers.

Consumers needed to be able to rely on the information they got from financial advisers, he said, and high levels of trust were placed in them.

He noted concerns from smaller operators that the new regime could be onerous for them and urged them to make submissions to the select committee stage. That was a theme his colleague, Michael Wood, also picked up – he said advisers were also keen to see a clear differentiation between “sales and service”.

Wood said he had heard “disturbing stories” about big providers incentivising RFAs to make sales.  He said it would be important the regulation was not just for the big end of town but allowed independent advisers to thrive.

Wood said the Financial Advisers Disciplinary Committee’s maximum fine of $10,000 seemed “a bit on the low side”.

National commerce spokesman Chris Finlayson said he would err on the side of greater regulation rather than less – driven by the experience of Ross Asset Management.

He said Ross had proved that errant financial advisers could wreck lives.

Green MP Gareth Hughes said the legislation seemed overdue. There would be questions to work through with the implementation of roboadvice, he said. If bad advice were given, it would have to be determined who was responsible, whether that was the person who wrote the algorithm’s code, the provider of the products or someone else.

There seemed some confusion about certain aspects of the bill - one MP referred to "raboadvice" and another thanked code working group members for completing work that is, in fact, only beginning.

“One of the significant changes is that we’re moving to an even playing field where all financial advice will have to meet good standards of conduct and competency,” Faafoi said.. “The current situation where some advisers are required to put the consumer first while others are not is really concerning to me.

“Some people are looking for relatively simple advice – like what KiwiSaver fund is right for me – while others will need more in-depth advice and financial planning services. Either way, I want all New Zealanders to be able to access the really sound advice and assistance they need to make informed financial decisions.

“Consumers put a great deal of trust in the people and institutions that provide financial advice, and good financial advice can make a huge difference.”

He said both consumers and the industry had pointed out problems with the way financial advice is currently regulated.

“So this bill strikes a balance between ensuring consumers can access quality advice, and not imposing undue compliance on the industry that could create unintended consequences that make advice less freely available.

The Bill will also improve disclosure to consumers. “Currently, consumers are often left in the dark about commissions and other factors that may influence the advice they receive,” Faafoi said. “We need that to change to ensure people are well informed at every stage of seeking or receiving advice.”

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