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It's real; Financial adviser reforms are go

The Government has pushed the go button for significant reforms to how financial advice is delivered in New Zealand. This evening the Financial Services Legislation Amendment Bill has had its first reading in Parliament and now goes to Select Committee.  

Thursday, December 7th 2017, 7:17PM 5 Comments

by Susan Edmunds

The bill has been sent to the Economic Development, Science and Innovation Select Committee. All of the MPs who spoke at the first reading supported it.

Commerce and Consumer Affairs Minister Kris Faafoi said financial advice had an important role to play in New Zealand and good advice could bridge the knowledge gap between consumers and providers.

Consumers needed to be able to rely on the information they got from financial advisers, he said, and high levels of trust were placed in them.

He noted concerns from smaller operators that the new regime could be onerous for them and urged them to make submissions to the select committee stage. That was a theme his colleague, Michael Wood, also picked up – he said advisers were also keen to see a clear differentiation between “sales and service”.

Wood said he had heard “disturbing stories” about big providers incentivising RFAs to make sales.  He said it would be important the regulation was not just for the big end of town but allowed independent advisers to thrive.

Wood said the Financial Advisers Disciplinary Committee’s maximum fine of $10,000 seemed “a bit on the low side”.

National commerce spokesman Chris Finlayson said he would err on the side of greater regulation rather than less – driven by the experience of Ross Asset Management.

He said Ross had proved that errant financial advisers could wreck lives.

Green MP Gareth Hughes said the legislation seemed overdue. There would be questions to work through with the implementation of roboadvice, he said. If bad advice were given, it would have to be determined who was responsible, whether that was the person who wrote the algorithm’s code, the provider of the products or someone else.

There seemed some confusion about certain aspects of the bill - one MP referred to "raboadvice" and another thanked code working group members for completing work that is, in fact, only beginning.

“One of the significant changes is that we’re moving to an even playing field where all financial advice will have to meet good standards of conduct and competency,” Faafoi said.. “The current situation where some advisers are required to put the consumer first while others are not is really concerning to me.

“Some people are looking for relatively simple advice – like what KiwiSaver fund is right for me – while others will need more in-depth advice and financial planning services. Either way, I want all New Zealanders to be able to access the really sound advice and assistance they need to make informed financial decisions.

“Consumers put a great deal of trust in the people and institutions that provide financial advice, and good financial advice can make a huge difference.”

He said both consumers and the industry had pointed out problems with the way financial advice is currently regulated.

“So this bill strikes a balance between ensuring consumers can access quality advice, and not imposing undue compliance on the industry that could create unintended consequences that make advice less freely available.

The Bill will also improve disclosure to consumers. “Currently, consumers are often left in the dark about commissions and other factors that may influence the advice they receive,” Faafoi said. “We need that to change to ensure people are well informed at every stage of seeking or receiving advice.”

Tags: code working group Commission compliance Disclosure FADC financial advisers Financial Services Legislation Amendment Bill FSLAB Kris Faafoi regulation RFA roboadvice Ross Asset Management

« FMA preparing for advice changesThe Wrap: Bill gets yes, PAA gets no »

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Comments from our readers

On 7 December 2017 at 8:52 pm Winka said:
Quite naturally, I have always been all for some form of regulatory process.

However, I am equally reminded of the fact that the recent GFC was instigated by the largest economy in the world, and one that was one of the most regulated.

We (NZ) had in place several similarities in regulation to that of the USA, for example, the use of a prospectus, with their relevant 'Trustees.'

Not one of those prospectus' saved any form of losses to investors, and it would be interesting to note that absolutely no-one has been able to identify to me even one Trustee who has been 'hauled over the coals', as were any relevant directors, many of whom were sent to jail?

Please inform me/us if there is any chance of any of us accessing this bill draft which appears to be going to be endorsed by politicians with no apparent financial advice credentials, other than operating their own bank account?

And someone suggested that banks are the ultimate form of 'ponzi' and they are still a force within the financial advice fraternity.

Oh, I for one provided numerous 'warnings' of the then potential David Ross Ponzi scheme!

It would be of interest to begin with seeing a draft of this proposed bill.
I shall watch this space.
On 7 December 2017 at 9:00 pm Murray Weatherston said:
Thought I should repost my comment on the earlier story here lest it get lost.

On 7 December 2017 at 6:40 pm Murray Weatherston said:
Bill passed its first reading tonight around 5.55pm. Labour speakers used up all their allotted time; most of the rest not.
Sent to Economic development Science and Innovation Select Committee
Chris Finlayson (Nat) said Bill required solely because of David Ross ponzi scheme. (Would have thought a former Att-Gen would want better reasons but maybe he and/or some of his friends had suffered?) Another Nat speaker suggested the pain from same cause in southern North Island.
Tamati Coffey looked like had written his own notes - he thanked Code Working Group members individually but somehow seemed to think that they had finished their work; rest of labour members all had pre-prepared speeches (typedn for them by MBIE they were so adulatory?) though last speaker Willie Jackson somewhat lost the plot in his ramble.
Everyone claimed credit - Labour because 2008 Act done under Labour's watch; National because the Bill was a national bill.
A couple of labour speakers mentioned the small end of town - hope concern is real. Michael Wood talked about sales and service when I think he thought he meant sales and advice.
Lot's of excitement about robo - but I guess they don't know most successful robo services are sales pitches either for the operators' own funds or their own platforms.
First impression - don't expect too much support for major change at Select Committee
On 7 December 2017 at 11:15 pm MikeBeuvink said:
‘Select Committee and Go Button’ - sounds like a bit of an oxymoron to me.
3 months of parliamentary holidays now, followed by bickering among the members of the committee. Who knows what the end product will be.
There’ll be change eventually no doubt, but as to when and what - there’s still a lot of water to pass under the bridge before we get the final result.

On 8 December 2017 at 6:20 am dcwhyte said:
@ Winka - you might find this site helpful - https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_74766/financial-services-legislation-amendment-bill

@ Murray - v. good summary of the submissions. Apart from some posturing and the obvious errors, the expected consensus emerged. The Opposition could hardly object to their Bill being presented but I believe we should still pursue the sales v advice issue at Committee Stage. If we try and fail - at least we tried; if we don't try - failure is guaranteed.
On 8 December 2017 at 9:38 am LNF said:
"Finlayson said he would err on the side of greater regulation rather than less – driven by the experience of Ross Asset Management."

Or Sir Doug at Lombard let alone Hanover SCF etc. You cannot regulate Ross, it would make zero difference

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