Just when you thought it was safe to go back in the water... Financial Advisers Act reforms!

Finance Update

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In our last mailing we talked about being in the home straight for Financial Markets Conduct Act implementation. Frankly, we wondered what we were all going to be doing and talking about in the regulatory space after 1 December. Now we know!

Today, MBIE released the results of its review of the Financial Advisers Act 2008 (FAA) and announced a comprehensive package of proposed changes to the FAA regime. You can find them here. We can expect to see legislation in Parliament by the end of this year. 

The proposed regime will focus on investor and consumer outcomes and include an objective of improving access to quality financial advice. Key elements are: 

Simplification 

Unnecessary complexity and arbitrary regulatory boundaries will be removed - no more distinctions between Category 1 and Category 2 and no more distinction between ‘class’ and ‘personalised’ advice. This will also pave the way for the provision of robo-advice. 

Level playing field 

All financial advisers must place the interests of the consumer first and only provide advice where they are competent to do so - no more distinctions between the obligations and expectations of different types of advisers. There will be an amended universal code of conduct but this will be proportionately applied – for example, different competency standards will apply to those who advise on general insurance compared to those who give investment advice. 

Three types of advisers 

The existing adviser types will be done away with and replaced by ‘financial advisers’, ‘agents’ and ‘financial advice firms’ – no more AFAs, RFAs, QFEs or QFE Advisers. Financial advisers will be individually accountable for compliance. Agents will not be individually accountable; that accountability will sit with the agent’s financial advice firm. There will be no difference between the services that a financial adviser and agent can provide but it is expected that advice given by agents will be limited in practice by the processes and controls set by the responsible financial advice firm. 

Meaningful licensing 

All adviser services will need to be licensed but it is recognised that it won’t be one size that fits all. The licensing regime will be at the financial advice firm level and compliance with licensing and reporting will be ‘right-sized’ according to the size and nature of the firm. 

Improved disclosure 

The regime will make it clear that ‘agents’ are not financial advisers and have no individual accountability. Disclosure to consumers will be simplified and shortened to include only the core information: scope of service, remuneration (including commissions) and competence. 

FSPR 

Businesses must have a stronger and genuine connection to New Zealand before being entitled to register on the FSPR. Interestingly, the proposal is to rule out companies that provide ‘just back-office administrative services’. The impact of this particular change will need careful consideration – particularly in light of New Zealand’s objective of providing hubbed back-office services to the world. shortened to include only the core information: scope of service, remuneration (including commissions) and competence. 

Overall, in our view, the proposal represents a giant step forward on the current regime with its complexities, distinctions and acronyms. We congratulate MBIE on listening and feedback, and designing a regime that should provide investor-focussed advice with competent advisers at its heart, but at the same time is right-sized and flexible from the industry perspective. 

But what of the industry that has sunk hundreds of thousands of dollars in shaping itself to the current regime? How quickly, and at what cost, will transition be required? We trust MBIE and the FMA will work with the sector to minimise transition costs and business disruption as they complete the legislative policy build and prepare to operationally implement the regime. 

There’s more to be done to complete the proposal – so expect more consultation in the coming months on some key elements including membership and proceedings of the Code Committee, compliance and enforcement tools (including a review of the role of the failed, and practically toothless, Financial Advisers Disciplinary Committee), dispute resolution and transition to the new environment. We look forward to working with you to understand and shape the proposal and will keep you informed as it develops. 

In the meantime, please do call us with any questions.