Members of the select committee overseeing the Financial Markets (Conduct of Institutions) Amendment Bill heard that while the bill is well intended, it has “serious flaws”.
Speaking via video link, Katrina Shanks, CEO of Financial Advice NZ told the Finance & Expenditure Committee on Wednesday 10 June that her organisation has six main concerns.
- The bill’s power to regulate sales incentives
- The bill has no definition of ‘fair’
- Confusion over whether financial advisers are included in fair conduct programmes
- The definition of intermediary
- The claims process
- The timing of the bill’s enactment
In a statement to media, Shanks says the power to regulate sales incentives for some products gives “…significant power” to the regulator and could have “…devastating effects on the sector if there is not adequate legislative oversight”.
…devastating effects on the sector if there is not adequate legislative oversight…
She says: “To allocate these powers to regulations and licensing, we believe, is dangerous and has the ability to destroy the advice sector and New Zealanders’ access to financial advice, leading to an increase in the massive under-insurance issue that currently exists. This section should be removed from the bill.”
Shanks is concerned there is no definition of ‘fair’ in the bill.
“Its absence would be confusing for consumers who thought they had been unfairly treated,” she says. “This bill’s aim is to provide better outcomes for consumers, so the pivotal concept of ‘fair’ must be defined in it.”
She told the committee the bill was confusing around whether or not financial advisers were included in the fair conduct programmes, and recommended clarification that financial advisers be expressly excluded.
She says there is also confusion around the definition of intermediary.
“The definition of intermediary appears to include financial advisers who operate under FSLAA,” she told the committee. “Clarification is required to ensure any financial adviser providing regulated financial advice under a FAP is excluded from the bill.
“The section on compliance requirements of providing advice on products from more than one provider could lead to advisers limiting their range of product providers and should be removed from the bill.”
…we recommend FAPs and their financial advisers be excluded when in the claims process…
Shanks also raised concerns about the claims process, saying it should be excluded from the bill.
“As it stands, an adviser assisting or advocating on behalf of a client, particularly relating to a claim, will be included in the ‘fair conduct programme’ because this is outside the advice process.
“But it’s at the point of a claim that it’s fundamentally important advisers remain independent of the provider, and for that reason we recommend FAPs and their financial advisers be excluded when in the claims process.”
Fidelity Life
In addressing the select committee Fidelity Life’s Joint Acting CEO Adrian Riminton told members he questions whether the bill achieves its objective of building consumer trust in the sector.
“We’re strong supporters of good conduct because it’s about doing the right thing for customers, advisers and shareholders,” he says.
“But we’d like to see the bill postponed and more consultation done to ensure the COFI bill creates certainty for the industry and consumers, and that it promotes confident and informed participation in financial markets.
“Without this, we’re concerned there may be unintended consequences which negatively impact the same consumers the bill is aiming to protect, such as increased compliance costs, lack of clarity on incentives and commissions and risk of consumer confusion.
“Right now, we believe our attention should be on continuing to support our customers – particularly vulnerable customers – advisers and our people through these challenging times.”