GUEST COLUMNIST – KATRINA SHANKS
It has been a long time coming, but as Katrina Shanks, CEO of Financial Advice NZ writes, the incoming regulatory requirements of financial advisers will reduce the noise and clarify their responsibilities to the regulator, the sector, and their clients.
The journey has been long, but the result is a good one: for both Kiwis seeking advice and for the financial advice sector.
Effective from 15 March 2021, the new disclosure requirements focus on improving transparency for consumers and will provide a welcome framework for advisers in disclosing relevant information throughout the process – from initial interest through to ongoing advice.
In a nutshell, the new requirements set out a broad framework for what to disclose, and when. It will reduce the ‘noise’ and complexity of disclosure, making is easier for clients to understand key information at important steps.
And for advisers, it is an opportunity to lift disclosure from being a compliance driven obligation, to an integral part of the client communication journey – a tool to foster trust and meaningful understanding.
Disclosure: A four-part process
Substantial improvements have been made from the draft requirements, many of which reflect the recommendations we made in our submission last year. Our main objective was to ensure disclosures were meaningful, manageable for the sector and not overwhelming for consumers.
The final version of the requirements achieves this by embedding disclosure into four key stages of the advice process, and only requiring the right information to be provided at the right time, and in the right context.
A welcome change for both consumers and advisers
We believe the new disclosure requirements hit the mark when it comes to delivering good client outcomes without burdening the financial advice sector with excessive red tape. This new approach to disclosure brings tangible benefits across the board, including:
- Clarity and understanding for clients
The new regulations identify what information is relevant to disclose, and when. Rather than overwhelming clients with a mass of details that would be difficult to grasp at one go, advisers and FAPs only need to provide information that relates to the client’s decision at a specific stage of the advice process. - Effective management of conflicts of interest
Conflicts of interest are a common and often unavoidable part of running a financial advice business. The key thing is not to avoid them, but to be upfront about them and manage them effectively. The new disclosure regulations are designed to do so. - Flexibility as to how disclosure is made available
As long as the relevant information is provided, the new requirements are not prescriptive on how disclosure should be made available. Advisers and FAPs have the flexibility to incorporate disclosure in any way that fits their business needs. - Financial advice as a relationship
Lastly, the new disclosure regulations reinforce financial advice as a mutual relationship based on trust and key objectives, rather than a simple transactional exchange. This doesn’t happen all at once; trust is built layer upon layer, from the initial point of contact to advice delivery.
Stepping clients through the Disclosure stages
The new requirements set out four disclosure stages, each requiring FAPs and advisers to disclose only specific information that may influence a client’s decision at that point in time. These include:
1) Information that a Financial Advice Provider must share on their website (or in writing if required), this is to help consumers choose an appropriate FAP for their needs (e.g. licence status, types of products they advise on, and information about fees, commissions or conflicts of interest).
2) Information the adviser must give the client when the nature and scope of advice becomes known. To help clients decide whether to seek, obtain or act on advice, the adviser must disclose information about things like any fees, commissions, conflicts of interests that may apply, as well as their own disciplinary history and material limitations on the scope of advice.
3) Information that an adviser must provide when the advice is given. This includes details to help clients decide whether to act on the advice given, like legal duties of the provider and confirmation of any applicable fees, commissions and conflicts of interest.
4) Information that FAPs and advisers need to disclose with when a complaint is received. This involves any details about the provider’s internal complaint handling process and clients’ access to external dispute resolution schemes.
It is pleasing to see that the new disclosure requirements are focused on providing information as relevant to a point in time in the decision-making process for the client. This will greatly support clearer disclosure through the process.
Here to help
Between now and the start date of the new regime (15 March 2021), Financial Advice New Zealand is committed to supporting financial advisers’ implementing of the new requirements. Along with specific webinars throughout the year, we’ll be running Masterclasses during conference (21-24 September 2020) to share helpful tools and best practices. Visit financialadvice.nz to learn more.