Final disclosure regulations welcomed

Tweaks to the disclosure regulations for financial advisers will make the rules more workable, industry participants say.

Thursday, June 25th 2020, 9:53PM

Katrina Shanks

The Ministry of Business, Innovation and Employment revealed the disclosure regulations that will apply with the new regime, which takes effect March 15.

As indicated in consultation, the disclosure rules will require information to be given as it becomes relevant at certain points in the advice process.

The disclosure will have to cover the type of licence held by a financial advice provider, the duties the person giving the advice is subject to, the services that can be provided, the fees charged, any conflicts of interest, the adviser’s disciplinary history, any convictions or proceedings including bankruptcy, and information about the adviser’s complaints processes.

Advisers will need to give clients information about incentives such as commissions they might receive as a result of the working relationship. A specific commission figure must be disclosed at the point of giving advice if it is known, even if the range was already disclosed earlier and the final figure is within the range.

Financial Advice NZ chief executive Katrina Shanks said the new rules had picked up many of the points made in the association's submission.

“The focus of the sector during this process was to ensure the right balance between good consumer outcomes and a financial advice sector which isn’t encumbered by unreasonable red tape and adverse outcomes.

“We support regulations around disclosure made to clients – including on conflicts of interest, commissions and other incentives and disciplinary issues.

“However, we are pleased to see a change from the draft disclosure requirements that now only requires disclosure of these matters when they would likely materially influence a client’s decision. This is something we strongly recommended in our submission to ensure disclosures were meaningful and not overwhelming for consumers.

“We were concerned the draft regulations required disclosure of product fees charged by unrelated third parties (eg insurance premiums) so the removal of the requirement to disclose fees for ‘acting on the advice’ was a sensible move.”

She said there would be a lot to work through between now and March 15 and there was no provision for a transitional application of disclosure requirements.

The FMA said advisers should apply for their transitional licences by the end of the year.

“The disclosure requirements are an important component of the new regime as they will ensure consumers have clarity and transparency around the financial advice they’re receiving,” said director of market engagement John Botica.

“We encourage advisers who haven’t begun the transitional licensing journey to actively consider their options under the new regime. We recommend advisers who intend to obtain a transitional licence file their application as soon as they are ready, ideally before the end of the year as a contingency. That way, you won’t be under pressure just before the regime begins and will have time to prepare for your new obligations.”

The FMA has so far granted 850 transitional licences.

Tags: Disclosure FSLAA licensing regulation

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