Financial Advice New Zealand CEO, Katrina Shanks, has urged the Government to take another look at the proposed changes to the Financial Services Legislation Amendment Bill.
Most importantly, she stressed a revisit to the issue surrounding the demarcation between sales and advice.
“In our submission we highlighted that to support good outcomes for Kiwis, we must provide clarity and ensure the public understands the difference between sales and advice, and the various types of advisers,” said Shanks, who was responding to the changes to FSLAB proposed by The Economic Development, Science and Innovation Committee in a report released yesterday.
“As it stands, the Bill only provides a definition of regulated financial advice but is silent on the definition of ‘product advice’. This decision could have been made in the Select Committee, and would have provided a stronger framework for the Code – and for Kiwis and advisers – on this crucial line-in-the-sand.”
The association pointed out two other key issues:
- The risk of lowering professional standards;
- The continuing lack of certainty about the impact of the new regime on small adviser firms.
“While the Code will set standards, the Bill sets the tone,” said Shanks. “The public deserves to know that the advice that they receive is from a person held to consistently high standards right across the industry. The current Bill leaves room for standards to be set at the lowest common level.”
“The current Bill leaves room for standards to be set at the lowest common level.”
“Sole practice or small adviser firms are crucial in ensuring that Kiwis can access financial advice – a point we highlighted in our submission. A key objective of the review was to ensure public access to advice, however the Bill does not bring any certainty to small adviser firms in terms of the cost or business impact of the new regime,” she added.
“On these issues, the Bill does not reflect the core purpose of the original legislation, the Financial Adviser Act, which was to ‘encourage’ public confidence in the professionalism and integrity of financial advisers. This may ultimately mean that the Kiwi public has less choice when accessing a financial adviser.”
Shanks outlined the following positives regarding the recommended amendments to the Bill:
Client-first
Strengthening the duty to give priority to client’s interests, which includes responsibilities such as disclosure and addressing conflict of interest. “We welcome this greater emphasis on putting clients first: it is pivotal in encouraging confidence and trust in financial advice and in doing so, helping more Kiwis benefit from working with a quality adviser.”
Nominated Representatives
Strengthening clauses relating to Nominated Representatives in the best interests of clients. In particular, it requires the organisation to have processes and controls which are complied with, and competence, knowledge and skills that are monitored. “The Bill also states that an organisation’s policies cannot influence behaviour by providing money or other incentives. This is a great step in addressing conflicts of interest and ensuring the client’s interest are the central priority,” she said.
Exclusions from Financial Advice
Maintaining exclusions and introducing limitations that advice professionals can give within their ordinary business. This extends to professional services such as accountants and lawyers. “We advocated for no exclusions in the legislation but are pleased to see the inclusion of strict limitations,” said Shanks.
Disputes Resolution
Introducing a clause requiring that any material information that may breach the law be shared with the Regulator by the Disputes Resolution Provider. “We are supportive of the sharing of information and the greater transparency.”
Licencing
Requiring that a licensee meet the criteria to offer financial services, and further instructing the FMA to disregard the transitional licence held when reviewing an application for a full licence. “This ensures standards are maintained and that the public can have trust and confidence in their financial provider,” said Shanks.
The Code Working Group Chair, Angus Dale-Jones, said after an initial review of the report, “we have got scope to do everything that we need to do so we are really happy with it from that point of view and we’ll just proceed along the track that we are headed on.”
Click here to read the Select Committee’s report in full.