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More work needed on disclosure rules, SiFA says

More information is required on what conflict of interest disclosures will be required of advisers in vertically integrated organisations, adviser group SiFA says.

Thursday, November 14th 2019, 9:54PM

It made a submission to the Government’s proposed disclosure requirements for the new financial advice regime.

MBIE wants advisers to keep a record of every disclosure made.

It suggests advisers make publicly available the licensing status of their FAP – including a brief summary of any conditions that might limit the advice that can be given.

The adviser would also have to give information relating to the type of financial advice the FAP gave, products advised on and any limitations, including product providers dealt with.

They should also explain the fees that could be charged for advice, as well as any conflicts of interest, including an explanation of the circumstances in which a commission might be paid.

Advisers would also have to give information about their own internal complaints procedure and external dispute resolution process.

When the nature and scope of the advice became clear with a client, MBIE suggested advisers give the same licensing information, information about the types of advice that would be given, and products advised on, including any limitations on the process.

Advisers should also offer information regarding any recent instances of being publicly disciplined, relevant convictions or civil proceedings and, in the case of financial advisers, any recent bankruptcies or insolvencies.

MBIE said they should also give information identifying the FAP, and adviser or nominated representative. They would also give a breakdown of the fees to be paid, including the amount due if it was known, or an estimate if it was practicable.

They should also give a description of conflicts of interest, including any commissions or incentives that could be paid.

Finally, when advice was given, the adviser should give much of that same disclosure again, including details of fees, and commissions.

They would also have to give the client a description of their duties under the Financial Markets Conduct Act.

But SiFA said some of those proposals could be problematic.

They could result in a huge volume of records needed to be collected and retained, the group said.

“In the early stages of a client engagement, there could be one document for every suspect, two documents for every prospect (who doesn’t become a client), and three disclosures for any person who is advised.

“The person who becomes a client could then get at least an annual disclosure for the ongoing relationship … Every disclosure will need to be retained for seven years. We really wonder what the rationale for seven years actually is. It’s hard to see why there is any need to retain records of a suspect or a prospect who doesn’t choose to become a client, and certainly not for seven years.

“Similarly, why would it be necessary to retain nine disclosures for a long-term client?”

SiFA said the idea that the adviser should list the name of all the product providers they dealt with was over the top when an adviser was “truly multiprovider”.

“We think the requirement to name each provider should be required only when the adviser is restricted to a small number of product providers – say 10 or fewer … We note that at the time the advice and scope is known, an adviser (except one in a VIO) might not know which products they are going to recommend."

SiFA said it was particularly interested to know what conflict of interest disclosure was required when advice was given by an adviser in a vertically integrated organisation.

“Arguably, disclosure of fees and commissions should be made right up the integration chain – eg a bank financial adviser giving advice on behalf of the bank and recommending the bank’s manufactured or white-labelled financial products should have to disclose all the fees, commissions and margins that will be earned at all levels of the integration.”

Tags: Disclosure new regime SiFA

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