The MBIE departmental report on FSLAB was made public this week. In it, it broke down the submissions received and the official response to each.
Financial Advice New Zealand said:
The Bill falls short of addressing many of the key issues identified in the review of the FA Act and does not effectively deal with the problems identified in the current regime. It will still be hard for consumers to know where to seek advice from.
Disagree. Unlike the current situation, everyone providing advice will be held to same standards, so the same duties, protections and disclosure will apply regardless of where consumers receive advice.
Financial Advice New Zealand said:
Consumers don’t understand the limitations on the advice – the introduction of nominated representatives will perpetuate this problem.
Disagree. The duty in the Bill to ensure the client understands the nature and scope of the advice (clause 27, section 431I) will address this. This will also be considered in the development of the disclosure requirements in regulations.
Financial Advice NZ said:
The new regime may privilege large firms over smaller firms, because of capability and cost constraints, and this will result in a significant number of advisers leaving the profession.
Disagree. It would be undesirable for many advisers to leave the profession rather than comply with the new regime. The licensing and other requirements are being designed to be proportionate so it is still viable for advisers to operate in small firms.
The Adviser Group Network said:
The entity licensing regime has led to poor advice outcomes for consumers in Australia and suggests that adopting a similar model here will produce the same outcome.
Disagree that entity-based licencing will necessarily lead to poor outcomes for New Zealand consumers. It is unclear this is the cause of problems seen in Australia. The Bill introduces universal duties of conduct and client care, and a strong enforcement regime in which the firm is liable for breaches by people that it engages to provide financial advice on its behalf.
Boutique Advisers Alliance, G3 Financial Freedom, Stewart Financial Group, Stewart Group Wellington said:
Do not want to see a large number of businesses leave the regime, but want standards to be maintained. Any form of grandfathering or lowering of the bar will lead to an inferior outcome to clients and the deterioration of the public’s trust in financial services. Encourage the legislation to remain solid and sound, noting that small firms may utilise a financial advice provider to assist in its compliance activities for a small fee, while remaining independent.
Noted. It would be undesirable for existing businesses to leave the profession rather than comply with the new regime. The licensing and other requirements are being designed to be proportionate so it is still viable for independent advice firms to operate. The details of the competency standards will be set in the code of conduct.
NZ AMP Advisers Businesses and Advisers Association said:
There should be no disincentive for a currently practicing AFA to register and practice as financial adviser. There is a risk that some current AFAs who currently offer complex and comprehensive advice and services will become nominated representatives and largely operate “below the radar”, thus removing much of any personal obligation on the individual for the advice they give. This seems inconsistent with the intent of the new regulation and consumers’ interests.
The Bill requires financial advice providers to have in place clear and effective processes, controls and limitations relating to the financial advice that can be given by nominated representatives. In order to grant a licence the Bill requires the FMA to be satisfied that the applicant can comply with this duty in order to give advice through nominated representatives. Note that we have recommended that the Bill be amended to clarify that the advice given by a nominated representative must be tightly controlled by the financial advice provider.
DLA Piper New Zealand, Fidelity Life, Insurance Council of New Zealand, The NZ AMP Adviser Businesses and Advisers Association Inc said:
The Bill should clarify the consequence of financial advisers being engaged by more than one financial advice provider, including the impact on licensing, complaints management and liability. Clarification is required so advisers can confirm their structure in the new regime and so that it is not confusing for customers.
Disagree. The duties in the Bill, combined with disclosure requirements (currently under development) and dispute resolution obligations will address these concerns.
Chatswood Consulting said, in an oral submission:
The definition of financial plan shouldn't be too broad as it might reduce access to planning services. Suggests that holistic planning which includes advice on the interplay between different financial products could be included, but not adbice regarding the structure of a single product
We are concerned that broadening the regime to cover all financial planning may have unintended consequences and capture other activities we may not want to capture (e.g. budgeting services). At this stage, there is insufficient evidence to suggest that it is necessary to extend the scope of the regulatory regime to this extent. However, we recommend including a regulation-making power that would allow the regime to be extended to other planning services so that this matter can be addressed in regulations.
The duty to act in the client’s interests should be limited to the nature and scope of the advice and limits as disclosed under section 431I. This is because It is not clear that someone can effectively demonstrate that they have given priority to a client’s interests within the scope of the engagement, or safely limit the scope of the engagement with the client as is possible under the AFA code of conduct. This creates disincentives for providers and clients to give and seek advice. The Bill should provide clarity, together with safe harbour examples, on how to interpret the client-priority duty for example similar approach done by the FMA on replacement.
Disagree. The Bill is sufficiently clear that the nature and scope of financial advice can be limited, and that a client’s interests must be placed ahead of those of the person giving financial advice.
Craigs Investment Partners, SIA and SIFA said:
The Bill should more clearly limit the advice a nominated representative can provide. If it does not, there is a risk that firms will have nominated representatives when it would be more suitable for those people to be financial advisers. The Bill should confirm that nominated representatives have very limited discretion over the advice they provide. Craigs Investment Ppartners: While the FMA will address this through licensing – the licensing process should be supported by a clearer definition in the Bill of the type of advice that can be provided by a nominated representative. SIFA: There is a risk that if a very liberal interpretation is allowed, everybody will want to be a nominated representative and nobody will want to be a financial adviser, which would not be a desired outcome. SIFA’s view is that if the person who is providing advice on behalf of an entity has any discretion at all, they should not be able to be nominated as a nominated representative.