GUEST COLUMNIST – KATRINA SHANKS
With the new regulatory regime approaching fast Katrina Shanks, CEO of Financial Advice NZ, looks at the four key areas of change financial advisers need to consider.
With a little over six months until 15 March 2021 and the start of the new regulatory regime, most details have been released, with final licensing details the last remaining piece of the jigsaw yet to fall into place. With time marching on, we encourage you to take five for this quick recap of the four key areas of change – the progress, details and considerations for your advice business.
1. New regime and licensing pathways (with the proposed introduction of three licence classes)
2. Qualification and competence (the two-year competency safe harbour will start on 15 March)
3. Disclosure obligations (as outlined by the Government in June)
4. Privacy Act 2020 (coming into force on 1 December 2020)
It’s important to make the most of the next six months and to reach out for guidance if you need to. In the busyness of the working week – and with the added strain of Covid-19 – time will no doubt be in short supply, but 15 March 2021 is fast approaching.
Remember, Financial Advice NZ is here to support our members through these changes with advocacy, regulatory resources and training, and practical tools for your business.
Now, for the recap on four key areas of focus for the next six months:
New regime and licensing pathways
The FMA’s consultation document released in June (on which submissions closed on 7 August), outlined three licence classes based on the scale, size and type of financial advice provided.
These are, in short:
Class A – for single-adviser businesses
Class B – for multi-adviser businesses
Class C – in addition to all the services covered by Class A and Class B, this licence also allows financial advice providers (FAPs) to engage nominated representatives
As we pointed out in our submission, the proposed licence classes hits the mark in providing small businesses with a fit-for-purpose system of their own. However, we do have a few concerns regarding the proposed structure.
For example, it’s not yet clear if application conditions and fees will vary between classes. Also, we feel the licence classes should not be publicly disclosed, unless they are renamed (e.g. Single adviser licence, Multi-adviser licence, and Comprehensive licence). This would avoid creating the impression among consumers that Classes B and C are secondary to Class A.
Under the proposed structure, only FAPs with Licence Class C are allowed to engage nominated representatives…
Under the proposed structure, only FAPs with Licence Class C are allowed to engage nominated representatives. This may restrict growth for small businesses, creating a barrier to entry for new advisers.
A solution to this could be to introduce a sort of ‘apprenticeship’ scheme similar to those we’ve seen in other sectors. Our proposal (as detailed in our submission paper) would allow FAPs with Licence Classes A and B to employ student advisers for a maximum of six months. We look forward to seeing if this recommendation will be considered.
We expect that licensing will be finalised shortly and will be providing guidance and information for members when this is released.
Qualification and competence
As you know, the new Code of Professional Conduct for Financial Advice Services imposes duties with regards to competence, knowledge and skills, with the NZ Certificate in Financial Services (Level 5) version 2 becoming the benchmark qualification which will be recognised as a person who has the capabilities equivalent to this qualification.
If you were to seek the capabilities through obtaining the Level 5 Qualification it can be tailored to the range of advice services you’ll be providing. It must include a Core component (covering areas like professional practice, ethics, risk and compliance); plus at least one advice-specific strand among financial advice, general insurance, investment, residential and property lending, and life and health insurance.
Disclosure obligations
The Government released the new disclosure requirements in June 2020, with the start date set to 15 March next year.
From initial interest through to ongoing client relationships, disclosure becomes an integral part of the financial advice journey. In line with our recommendation, the final version of the requirements achieve this without burdening the sector with excessive red tape.
Advisers are required to provide only relevant information in the context of four key touchpoints:
- Their website
- Before the advice is given
- When the advice is given
- When a complaint is received
This means that clients will benefit from receiving relevant, timely information in the appropriate context rather than too many details at the same time. Plus, the new disclosure requirements give advisers a high degree of flexibility for how disclosure is made available.
This welcome step-by-step approach to disclosure will aid in clear communication and understanding with the client, and help to reinforce trust and clarity in the adviser relationship.
It’s important to understand what the new ‘disclosure’ looks like and prepare to implement the requirements…
It’s important to understand what the new ‘disclosure’ looks like and prepare to implement the requirements at an operational level. At Financial Advice NZ, we will continue to support members with helpful tools and resources, starting with our conference Masterclasses on 21-24 September 2020.
Privacy Act 2020
From 1 December 2020, the Privacy Act 2020 will introduce a new privacy framework alongside the obligations already set out by the new financial services regulations.
Recently, Financial Advice NZ hosted Campbell Featherstone and David Ireland from law firm Dentons Kensington Swan on a webinar on the key changes the new Privacy Act brings to the table. The webinar is part of our series Bring in the Experts, and you can listen to it in full here.
Among the changes that are most likely to impact on your business practices are:
- The new principle of ‘data minimisation’: All businesses must only collect and keep personal information that is needed, for as long as it is needed
- Binding access direction: The Privacy Commissioner will have the authority to compel businesses to release any personal information they may hold about a person (upon the person’s request)
- Mandatory data breach reporting: Reporting of ‘notifiable’ privacy breaches becomes mandatory (where ‘notifiable’ breaches are those likely to cause serious harm to a person)
- Cloud computing: If you’re engaging with a third-party provider to hold your clients’ personal data (for example, on a cloud-based CRM system), you remain responsible for the security and use of said data
There were some key takeaways from our session with Dentons Kensington Swan. Firstly, being compliant with the Privacy Act isn’t just about legislation; importantly, it is about your reputation as a business and the trust your clients have in you. Secondly, being proactive now can make all the difference down the line.
The key message from our experts? Be prepared: have a privacy policy, make sure your processes are thoroughly documented, lay out a response plan, and ensure your IT provider has robust policies in place.
The next six months (and beyond) will be a critical time for the financial advice sector. Don’t hesitate to reach out for guidance in need and remember that the team at Financial Advice NZ is here to support our members with tools, information and more to make the transition to the new regime as smooth as possible.