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Exemption grows under FSLAB

An exclusion that allowed lawyers and accountants to give financial advice without being caught by the same regulations as financial advisers looks to have been extended under the new rules.

Tuesday, January 23rd 2018, 6:00AM 4 Comments

The exclusion, or exemption, was contentious – some financial advisers felt it treated other professions with an unfairly light touch.

But in the new Financial Services Legislation Amendment Bill, which is working its way through the select committee process and on which submissions are currently sought, the wording has changed.

Kensington Swan lawyers pointed out that it still applies to tax agents, real estate agents, accountants, teachers, lecturers, journalists and valuers who give financial advice in the ordinary course of their occupation.

“Of interest to some will be the fact that incorporated law firms appear to get a wider exclusion, where any advice given in the ordinary course of such a firm’s business is excluded. We think the difference is more than just splitting hairs. Curious.”

Instead of referring to advice given as an “incidental” part of another business, the bill now refers to an “ancillary” part, and instead of "exemptions", talks about "exclusions".

Kensington Swan said the Financial Advisers Act had expressly distinguished the two terms.

The new bill also introduces an amendment for advice given for the purpose of complying with lender responsibilities.

Under the CCCFA, lenders must ensure they are not lending more than borrowers could pay back. Some lenders had been concerned their inquiries to determine that lending was responsible could veer into the financial advice regime.

The new exclusion applies when advice is given by a lender to a borrower, in relation to a consumer credit contract or insurance contract, and is given for the purpose of complying with the lender’s responsibilities under the CCCFA.

The lender must take reasonable steps to ensure that the borrower understands that the advice is not regulated financial advice, and the implications of that for the borrower. 

Kensington Swan said most of the exemptions that existed under the FAA have been carried across to the bill, with a number of minor amendments made for clarity.

“Lenders are the biggest winners, with a new exclusion for advice given in relation to a consumer credit contract or relevant insurance contract for the purpose of complying with lender responsibilities. It remains to be seen what, if any, further exclusions will be provided for in the regulations, and what changes will be made as the Bill works its way through select committee. “

Tags: financial advisers Financial Advisers Act Financial Services Legislation Amendment Bill Lending regulation

« 'Business as usual' despite correction fearsMann on a mission to diversify financial advice »

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Comments from our readers

On 23 January 2018 at 6:04 am Pragmatic said:
No surprises here when the fox is involved in designing the hen house
On 23 January 2018 at 9:11 am Steven Popodopolus said:
On 23 January 2018 at 9:28 am smitty said:
What really puzzles me is that a Real Estate agent can happily tout a potential property as a great investment for your future. NZ invest (to name one) openly advertises using property as a means to save for retirement. So how does borrowing $500,000 or more from a lender, to buy one asset, in one town, in one country, usually negatively geared, warrant no need for advice, but investing $250.00 per month into a managed fund warrants disclosure, advice document, reviews???? Enough is enough. The IFA or NZ Advice, should be beating down the door to limit advice to qualified professionals. How else would you create a profession. Accountants and lawyers, or the oversight thereof, seem to have a short memory. Given my experience with seeing portfolios before and after the GFC which always had some form of mortgage fund in it, or some form of debenture in there. Investment advice is for the realm of suitably qualified professionals. If a lawyer or accountant or an Estate agent wishes to delve into, then sit the papers, become qualified and become accountable for your advice. Sincerely a frustrated adviser!
On 29 January 2018 at 11:54 am retired blogger said:
Here is the real problem


January 28, 2018

Peter Kell: ASIC deputy chair

The Australian regulator has given institutions another incentive to slim down their wealth management operations following the release of a damning report on so-called ‘vertically-integrated’ financial advice models last week.

As the Australian Securities and Investments Commission (ASIC) Report 562 notes, over the last 12 months or so all of the country’s major banks have divested some wealth management assets with ANZ and Commonwealth Bank of Australia (CBA), for example, selling their respective insurance units late in 2017.

Perhaps co-incidentally, in the same week as ASIC slammed vertically-integrated advice providers, the National Australia Bank (NAB) was reportedly considering a A$6 billion float of its mammoth investment, superannuation and financial advice businesses. AMP – which along with the big four banks feature in the latest ASIC report – is also rumoured to be weighing up the sale of its life insurance division.

The ASIC ‘Financial advice: vertically-integrated institutions and conflicts of interest’ report, meanwhile, found a large bias to in-house product sales and ‘non-compliant’ advice in 75 per cent of the cases it examined.

According to the ASIC report, almost 70 per cent of product sales captured by its review – based on an analysis of 200 client files across the largest financial planning groups owned by the five institutions – ended up in house brands. However, on average, the approved product lists (APLs) of the advice businesses investigated were heavily-weighted (80 per cent) to external products.

“Platforms (91%) had the highest proportion of total funds invested by all customers in in-house products. Superannuation and pension (69%) and insurance (65%) also had significantly higher proportions of all customer funds invested in in-house products,” the ASIC report says. “By contrast, investments were more evenly split between funds invested in in-house products (53%) and funds invested in external products (47%).”

The ASIC study – which shared the analysis 50/50, or 100 client files each, with an unnamed external firm – found the level of funds invested in-house ranged from about 30 per cent to 90 per cent across the 10 financial advice dealer groups under scrutiny.

While 75 per cent of the client files evidenced ‘non compliant’ advice – as measured by poor explanation of decisions to recommend in-house superannuation products – ASIC says just 10 per cent (or 19 cases) triggered “significant concerns about the financial position of these customers”.

“Despite this, the high level of non-compliant advice, combined with the high proportion of funds invested in in-house products, suggests that the advice licensees we reviewed may not be appropriately managing the conflict of interest associated with a vertically integrated business model,” the report says.

As well as embarking on targeted actions against specific advisers, dealer groups and institutions in the wake of the report, ASIC is considering industry-wide reforms including the requirement for relevant firms to publish APLs and aggregated actual client product data.

The regulator will “consult with the financial advice industry and other relevant groups on a proposal to introduce public reporting on approved product lists and where client funds are invested for advice licensees that are part of a vertically integrated institution,” the report says. “… We will also consider the implications of our findings for other vertically integrated advice businesses. It is likely that initiatives implemented by the large institutions can be scaled to address similar concerns at other advice licensees.”

Peter Kell, acting ASIC chair, said the latest findings would contribute to the regulator’s long-standing efforts to address conflicts of interest within major financial institutions.

‘There is ongoing work focusing on remediation where advice-related failures have led to poor customer outcomes, and the results of this review will feed into that work,’ said Mr Kell

The latest ASIC report follows a long line of historical studies found poor advice levels in Australia including “‘shadow shopping’ surveillances in 1998, 2003, 2006, and 2011”.

In its corporate plan published last August, ASIC’s NZ counterpart, the Financial Markets Authority (FMA), flagged vertically-integrated firms as an area of special interest for the year ahead.

The FMA would “carry out thematic work focused on vertically integrated firms and conflicted business models”, the corporate plan says. “This will include looking at incentives and sales processes. We will also look at conflict management policies and procedures.

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