There were 72 written submissions on the bill, and 33 oral submissions.
The committee was told in an initial briefing that there were clear themes to the submissions.
One was concern that there should be more of a distinction between sales and advice, to clarify which consumers were getting.
MBIE said it had consulted on an option that distinguished the two in 2016 but it was “not a preferred option”.
“We were concerned that creating a distinction would exacerbate some of the issues with the current regime, and pose a risk to consumers who might not understand the limited protections when dealing with ‘salespeople’.
“It may also reduce access to advice, as some businesses may choose to only provide ‘sales’ in order to avoid any additional compliance costs.”
The officials told the select committee the same standards would be applied under the bill to anyone offering financial advice, whether they were considering one product or the whole market. They would have to ensure the client understood the nature an scope of the advice.
Some submitters had asked for a ban on commissions, the briefing notes.
“This option was included in MBIE’s Regulatory Impact Statement on the Review of the FA Act but was not a preferred option as it would reduce access to financial advice for those who are unwilling or unable to pay for it. Rather than banning or restriction commissions, the bill aims to address the impact of these incentives through universal duties of conduct and client care, and improved disclosure requirements.”
The officials acknowledged concerns about the nomianted representative designation – someone operating in the industry under the umbrella of a financial advice provider, with less regulatory and compliance responsibility than a financial adviser.
Some submitters wanted those representatives to have more liability.
In its departmental report to the committee, MBIE said it recommended the bill clarify the policy intent – that a nominated representative can only give financial advice that is tightly controlled by the processes and systems of the licensed financial advice provider, who is ultimately accountable for the advice.
The report noted the NZ Bankers’ Association recommendation for mandatory reference checks for providers hiring representatives.
“We are concerned that this proposal could be manipulated by coercive employers. Moreover, we note the proposals have not been subject to public consultation and could have broader implications for the industry. The bill provides adequate incentives on businesses to have robust recruitment processes.”
The officials also acknowledged concern about increasing compliance cost under the new FSLAB regime.
“The bill seeks to reduce compliance costs on smaller businesses through entity-licensing, which will allow multiple advisers to operate under a single licence. It is intended that the costs of licensing will be proportionate to the size of the financial advice provider, and the nature of the advice they provide. Details such as fees and levies and the licensing process will be designed with this in mind.”
The departmental report noted concerns around the wording of the conflict of interest duty, which requires advisers to give priority to client interests.
“A number of submitters have requested drafting changes to clarify that the duty would not require people who give advice to recommend products outside of their own suite of products.
"These submitters are seeking clarity that the duty is limited by the nature and scope of the advice and does not, for example, require a person who gives financial advice at a bank to send a customer to a competitor if another bank has a product that would serve the client’s interests better (e.g. a lower interest rate on a loan)."
But the officials did not think this was required.
"The duty to give priority to client’s interests is about conflict-management, and does not require advisers or providers to consider every product on the market.”
The next step is the second reading of FSLAB, which is up to the leader of the house.
In part two: What they thought of submissions
