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New minister gets into client first debate

New Commerce Minister Kris Faafoi says he’s less worried about whether New Zealand has enough financial advisers to cater for the population – and more whether the financial advisers it has are putting their clients first.

Monday, November 27th 2017, 6:00AM 11 Comments

Faafoi will have responsibiltiy for guiding the new Financial Services Legislation Amendment Bill through Parliament.

While adviser numbers, particularly of AFAs, have dwindled over recent years, Faafoi said he was not worried about the quantum of those offering advice to New Zealanders.

He was more concerned that people who were getting advice were getting it from someone who had their best interests at heart, he said.

It was problematic that the obligations on advisers were not uniform across the board at present but that was one of the things that FSLAB would tackle.

The success of the financial advice sector would come down to whether consumers were protected and getting good advice from people who put their interests first, he said. 

“There is a need for change in these areas,” he said. “Whether there should be more financial advisers is not a question I can answer right now.”

There needed to be clear, sufficient oversight of the sector.

“Essentially that’s what the bill does.”

Faafoi said it was too early to talk about whether there should be a ban on commission, but that was likely to be a question that would be asked “at some stage”.

He said people were entitled to know what they were being charged for a service and how those payments were made up.

That transparency is something that will be tackled under the new disclosure requirements.

Transparency would also be key to keeping a lid on KiwiSaver fees, he said, as providers realised that what they were charging was being made clear to members. Faafoi said the FMA should be commended for its work in developing its new tool, which tracks fees and returns.

It was reported this week that FSLAB could be delayed by six months from its original proposed timeframes. But Faafoi said that was not yet clear.

The new government had different priorities and would be focusing first on health, housing and education, he said.  There had not yet been any discussions about how other work would line up after that.

Faafoi said the FMA was concerned at having a timetable for transition that gave market participants time. “It’s my job to make sure we get the process right,” he said.

Tags: AFA annuities Commission Disclosure fees financial advisers Financial Services Legislation Amendment Bill FMA KiwiSaver Kris Faafoi

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Comments from our readers

On 27 November 2017 at 9:10 am Brent Sheather said:
Wow, this looks to be very good news for the non-vertically integrated minority in the financial services industry. Mr Faafoi looks to be a breath of fresh air and he is obviously listening to the right people as opposed to his predecessors who may well have been captured by the banks. Hopefully his appointment signals a new direction i.e. the right direction for the FMA. His next move should be to refresh the directors of the FMA with uncompromised experts and failing that anyone who is compromised. My view is that an uncompromised idiot will provide a better deal for retail investors than a compromised expert.

By the way there is no debate about putting clients’ interest first. You either do or you don’t and the industry doesn’t need weasel arguments like “putting the clients interest first depends who you work for”.
On 27 November 2017 at 10:47 am R1 said:
Well, well, well; looks like this minister is not angling for a job in the Big End Of Town at the end of his tenure. How refreshing to have someone who is focused on the interests of those who elected him rather than those who buy favours. Well said Mr Faafoi and I for one look forward to seeing the impact of this 'new broom'. Is it possible that Kiwis won't need to increase their their retirement savings contributions for their retirement (as some fund managers keep banging on about) as fees will be lower?
On 27 November 2017 at 4:37 pm NormanStacey said:
My gosh, it must be the season to celebrate. Comments from the Minister that non-aligned Investment Advisors can take heart from - and comments from Brent all practitioners of independent strategies can agree with.
On 28 November 2017 at 6:56 am Murray Weatherston said:
@Brent, R1 and Norman
Please help me.
What exactly do you see in this article that should cheer the non VIO advisers?
I don't see anything that the VIOs would be worried about at all. Minister Faafoi does not appear to me anyway to be suggesting there will be any major changes to FSLAB as she is writ.
Or do you think the emphasis on "putting the interests of the clients first" [incidentally the old framing - the new one is "giving priority to the interests of the client"] means something in minister-speak.
In the investment space, doesn't the fact that the FMA has brought very few charges of breaches of CS1, and has had no success in making even one stick, mean there is already 100% compliance?
On 28 November 2017 at 9:01 am Brent Sheather said:
Hi Murray

My take-away from Mr Faafoi’s comments is that his view of what “putting clients’ interests first” means is more consistent with what the average New Zealander would take that comment to mean and very different to Mr Everett’s fantastic “polo shirt” interpretation. Mr Faafoi is quoted as saying that despite the regulation he is worried that financial advisors aren’t putting clients’ interests first. That’s a revelation as very few new Ministers come into a role and say that what has been said ain’t so. It is obvious to anyone with half a brain that sees recommendations from vertically integrated providers that Mr Faafoi’s non-expert view is exactly right. That financial advisors are not putting clients’ interests first is, somehow, not obvious to the FMA but fortunately Mr Faafoi is in charge of the FMA so I’m hopeful that Mr Faafoi’s common sense and non-compromised view will prevail.

Making me even more optimistic for the future was the fact that he said he was also concerned that “the obligations on advisors were not uniform across the board”. I took that to mean that Mr Faafoi is disagreeing with the FMA’s conclusion that vertically integrated providers are putting clients’ interests first.

I have written to Mr Faafoi congratulating him on his views, appraising him of the current situation as regards the FMA’s interpretation of putting clients’ interests first and of various other issues regarding the FMA that are problematic for retail investor outcomes. I am hopeful of meeting with him and am meeting with various senior Labour party officials on this matter and various other related matters. And guess what I am very happy I voted Labour.
On 28 November 2017 at 9:45 am R1 said:
Hi Murray, just to reiterate some of what Brent has said, the fact that this Minister has a proper and common sense definition of what putting the client's interest first means sends a strong signal to the FMA on his expectation of them and I would also hope means that when he gets round to reviewing the current draft legislation that there will be no "ASB polo shirt" opt out for the VIOs. Perhaps this is naïve but the 'new broom' has an opportunity to win over more than just their traditional voter base with this.
On 28 November 2017 at 10:20 am Murray Weatherston said:
Thanks Brent
Interesting how we read vastly different things into the same statement.
I read his comments about lack of uniformity as being between investment advisers and other advisers. You took it to mean VIOs vs non-VIOs.
Sir Humphrey would have a huge smile on his face about these two completely different interpretations being possible from his Minister's statement.
For me to change to your view, I would need to see the Minister ripping away the cloak that currently protects the VIOs when selling mainly their own products to their customers under the disguise of "advice".
On 28 November 2017 at 12:15 pm Brent Sheather said:
Hi Murray

You could be right and despite 33 years in the industry I’m still an optimist! I hope to speak to Mr Faafoi so that he knows what’s going on and he knows what needs to be changed.

On 28 November 2017 at 12:53 pm Pragmatic said:
Hopefully Mr Faafoi will seek a healthy sample for his industry insights rather than relying on myopic squeaky wheels.

...that would also include perceptions and expectations from consumers - our ultimate clients
On 29 November 2017 at 11:05 am mike.lay said:
All I hope for is consistency - that we ALL work to the same rules. Put the clients interests first and ensure the banks do the same.
On 29 November 2017 at 11:28 am R1 said:
Provided Mr Faafoi bases his decisions on the facts around the issues and not the rhetoric of the various lobby groups then hopefully investors will get what they deserve; their interests put first and advice at a reasonable total cost.
Perceptions are important, only from the perspective that they may not reflect reality and we need to understand that and educate people on the facts so that they can make informed decisions. "Squeaky wheels" that promote the facts are valuable in this process.
I am getting tired of the media publishing sponsored content that peddles misinformation and gives the investing public the wrong perceptions.

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