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Pace of change stretching industry limits

Financial Advice New Zealand is calling for “breathing room” for the sector before any more changes are introduced.

Monday, June 17th 2019, 6:00AM 2 Comments

Katrina Shanks

Submissions closed in early June for an options paper released as part of the Ministry of Business, Innovation and Employment's review of the conduct of financial institutions.

The paper tackled some of the issues raised by the Reserve Bank and Financial Markets Authority's review of life insurers and banks, but proposed changes that would have wider implications.

The options paper said there was an imbalance of power between institutions and customers, some products were not designed with good customer outcomes in mind, sales were prioritised over customer welfare, there was not enough accountability to ensure good conduct, and there were generally weak systems to manage conduct risk.

Among its proposals for change were a range of duties for providers that appear similar to the financial advisers' code of conduct, including a duty to prioritise' customers' interests. It also proposed a duty to design remuneration and adviser incentives in a way that promoted good customer outcomes, and asked for feedback on a potential cap on upfront or trail commissions for advisers.

Financial Advice New Zealand made a submission in which it said there should be time allowed between the introduction of the Financial Services Legislation Amendment Act (FSLAA) and any policy initiatives that arose out ofthe review.

“To instigate a new regime for financial institutions before the industry can adjust to the requirements of FSLAA could add risk to the changing structure of the New Zealand advice sector,” said chief executive Katrina Shanks.

“We need to ensure that regulatory change supports the key objective of ensuring New Zealanders can access quality advice; overlapping regulatory change poses a risk to this fundamental goal.”

She said the licensing regime needed to be allowed to bed in before any more change was introduced. The pace of change was stretching the capacity of the industry and entity licensing would be a significant challenge for many advisers, she said.

“Let us deal with one change and the implications of that… it’s important to allow breathing space between that and any new legislation.”

Shanks said it was also important that any changes did not blur the responsibilities of advisers and institutions.

“Where do the responsibilities and accountability of institutions stop and start and where do the responsibilities and accountability of financial advisers stop and start?

“Duties proposed in the options paper are very similar to the duties under FSLAA: this risks blurring responsibility and accountability between the product providers and the financial adviser. Without clear distinction between the liabilities and duties of providers and of advisers, the adviser sector and access to financial advice will be negatively impacted.”

If changes were made to the remuneration of advisers, it was important for regulators to understand what a sustainable adviser business model looked like, she said.

“Maintaining a sustainable business model for advisers is crucial in ensuring New Zealanders can access quality advice. While we are supportive of designing remuneration with features such as persistency and ongoing service, to further support good outcomes for consumers, we strongly caution against drastic changes to remuneration, particularly if made in isolation from ensuring that advice is affordable and accessible for New Zealanders. If a change in remuneration models is made in isolation from this most important consideration – maintaining access to quality advice – this will have a severe and negative impact on the well-being of the advice sector and the financial lives of New Zealanders.”

Tags: Financial Advice New Zealand Katrina Shanks

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Comments from our readers

On 17 June 2019 at 9:05 am Pragmatic said:
Sound advice. Well done FANZ for a common sense approach
On 18 June 2019 at 8:45 am Doddsy said:
Agree Katrina
Its along long road

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Last updated: 15 July 2019 9:47am

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