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In his maiden speech to the industry as Minister for Commerce, David Clark called for partnership between government and the financial services on the eve of unprecedented regulatory shakeup.
Borrowing some well-rinsed rhetoric from his boss, PM Jacinda Arden, he said, “The team of five million is the cliche, but people really stepped up and got involved and that is how we got to be where we are.”
Clark stated that “New Zealanders really feel a sense of ownership in helping the economy remain strong. I believe this means we can take things to a whole new level when building trust in the sector and getting more people taking advice and getting better financial outcomes for more New Zealanders.”
FSC chief executive Richard Klipin, who moderated the conversation with Clark, asked the minister if he believes that New Zealand trust in advice is as strong as recent surveys from both the FSC and Financial Advice NZ have shown.
Clark said that while "the lived financial experience differs across the country, what we do know is that when people get advice they do get better outcomes. It’s about gently encouraging people in that direction.”
The gentle encouragement that Clark sees benefiting the industry and the New Zealand public both is “getting those stories out there of how people’s lives are changed through getting good advice.”
The damaging impact of what happens when bad stories get out there in the mainstream media is all to clear for Clark, who as the MP for Dunedin saw the devastation of fraudster ex-financial adviser Barry Kloogh first hand.
“Cases like that highlight the importance of getting this right. People need to know that there is a regime they can trust. Because unfortunately when there is one bad story, lots of people hear it. When positive stories get out there I hope we can get more New Zealanders getting the advice that will make them better off.”
In terms of what is at the forefront of New Zealanders thinking in terms of their finance, Clark says that KiwiSaver is vital for getting that conversation started. “I think that KiwiSaver has an important role to play, who those default providers are is incredibly important. The advice products that financial services offer all contribute to that picture.”
On the topic of default providers, Clark said that “the default provider funds will be announced in May and they will be in place by December.”
Clark said that the government’s role in promoting the benefit of financial advice is “a partnership” with the industry.
“It has to be something that we work on together. Government has a role in creating a regime that builds trust. However the industry itself and the industry bodies in particular have a role in building confidence."
Clark concluded by saying that “I think we will know that we have a sector that is really humming if we are seeing savings grow. If we see people investing in products, if they are making wise decisions about their financial futures and they are confident and resilient.”
Botica busts industry myths
The FMA director of market engagement John Botica busts some long standing advice myths.
Botica became a momentary mythbusterat the Getting in Shape roadshow when sharing new data which contradicted long-standing myths of the adviser industry.
He says FMA stats bode well for an industry on the cusp of major regulation change. “There are over 2200 businesses that are license ready. There are more than 9600 advisers working for those businesses.”
But it was when Botica turned his attention to mythbusting that the data got interesting.
“There are two or three industry myths that I want to bust. The first one is around the myth of the aging adviser. You might be surprised with the statistics. Sixty percent of today’s advisers are aged under 50. Thirty percent are between 51 and 65. Seven percent are over 65. Interestingly 3500 advisers are aged under 40.”
“There is not a large number of those advisers that we nicely refer to as grey panthers. Clearly we still need to focus on bringing more young people into the industry, but these statistics look quite different than a lot of myths that we talk about.”
The next myth that Botica turned to was the “death of the solo adviser through licensing”.
“This myth is something that I have never really believed nor supported, and the licensing statistics back that position. More than 50% of the firms that we have granted transitional license to so far are solo businesses.”
“That fear that there would be consolidation across the market, particularly that some of the larger firms would look to buy up the smaller firms, isn’t happening. In fact the solo adviser firms are actually dominating the market.”
The other myth that Botica wanted to bust was the terminology around “holistic advice”.
“It’s a term that personally I hate. It gets bandied out every time there is a crisis and covid is no different. What I come back to is, isn’t giving advice about relationships? Don’t good advisers actually partner with their clients? Advice does all of these things already so why don’t we just call it what it is instead of using these terrible terms?”
Botica finished off his myth busting with a challenge to the audience of assembled advisers. “My challenge to you is to be brave with advice. Challenge your clients, offer alternatives, and use scenarios that are effective.
“Don’t just make the changes to your businesses because of the regulatory requirements. All the changes have been designed to improve the quality of advice. They have not been designed as hurdles to stop you delivering what you do best.”
Climate change laws: Know them, learn them and love them
Advisers and fund managers who are dragging their feet on climate disclosures have another think coming, according to Matt Raeburn, senior policy analyst at the Ministry for the Environment.
Raeburn said A representative from the Ministry for the Environment told advisers at the FSC: Get in Shape events to get used to the TCFD (Tbecause it wasn’t going anywhere.
He said new climate change laws, the Task Force on Climate-related Financial Disclosures (TCFD) isn't going anywhere. “Know it, learn it, love it because it is going to be coming up a lot over the next few years.”
Back in September 2020, New Zealand was the first country to sign up to the TCFD disclosure framework, which requires all registered banks, credit unions, building societies, managers of investment schemes and licensed insurers to comply with the groups' standards of climate reporting.
Raeburn says that the reporting will impact “effectively New Zealand’s financial system. All banks, all insurers, managed funds and basically every company listed on the NZX.”
Though the required disclosures will only come into force in 2022, Raeburn says that “There are a lot of companies that are doing it already, Westpac for example have just released their first TCFD report.”
Raeburn said: “This is something that you are going to want to be paying increasing attention to because these disclosures are going to be identifying potential exposures and sensitivity to climate impacts, which again are things that are already there but just haven’t been well accounted for. In the same way that the pandemic risk was already there until it was very much exposed.”
The fact that Westpac is already disclosing its climate related information to the public should be a sign of how central the TCFD is going to become by the time 2022 rolls around. But Raeburn says that advisers need to be thinking about what information the disclosures offer now, to best make the most of the offered information.
“The theory behind this framework is that by giving investors this information, that they can start to make better decisions that will drive corporate behaviour away from those climate-related risks and pursuing better opportunities.
“I think that this is going to make more of a difference at an institutional investor level. The big investment firms like BlackRock. They are the ones that have been clamouring for this new disclosure, that highlights risks and opportunities that are not being accounted for now but have already existed.
“For smaller individual investors and advisers, I think that value aspect is going to come into play. To help people make decisions based on who is credibly reporting their climate related risks is important not just to individual investors but the country as well.”
Industry strong and ready for change
New research shows that the financial advice is in good health and that the industry is largely poised for change.
The new research called, “Unlocking the Potential of Professional Financial Advice” shows that the financial advice sector has remained resilient despite the challenges of Covid-19 and regulatory change while continuing to provide ongoing value to Kiwis.
The FSC research committee asked the advice community three questions.
- How do you feel on the other side of Covid?
- How ready are you for upcoming regulation changes?
- What is your outlook for the future?
Financial Services Council chief executive Richard Klipin said that the conclusion of the research was that “we are in a huge moment of change. We are moving towards the much more level footing of an advice-led [rather than a sales-led] conversation.
“Because of this, business models, remuneration models, how advisers connect with their clients are all going to change. It feels like this moment is unleashing an incredible opportunity for the industry.”
As well as reaffirming previous research that highlighted the benefits of financial advice during times of turmoil, the research also showed that advisers were feeling that they could weather the post-Covid storm.
“What we saw in Covid was a change in how people operated their businesses. The key change in this sector has been the pick up and the take up of technology.
“This powerful take up of technology puts advisers in a powerful position moving forward.”
When looking at how ready advisers are for regulation change the numbers are looking even more positive.
“At the end of last year, 57.5% of advisers said that [they] have continued to ready themselves to implement the required changes in FSLAA, 32% said they will be ready when it begins.
“This notion in some parts of the sector [that some are] wondering how ready are people? How many people are out there not doing anything? This data says that most advisers are well down the track.”
According to the research most advisers have a positive outlook for the future. Many of the respondents felt that the incoming regulation changes are positive for customers, and for advisers both.
One less positive issue that was raised in the research is what Klipin called a “demographic time bomb”.
“As a tribe, financial services are getting older. Some of the data that came through showed that people were thinking [about] when they were going to up sticks and grow avocados.
“In our sector there are a lot of people five years out from that point. If only 18% of New Zealanders get advice, but 35% say they want or would consider it, where are all the people who are going to look after them?
“In the report we call that a demographic time bomb.”