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Regulation will restore confidence in financial advice

The Government is not looking to ruin the financial advice sector by over-regulation but make it more accessible and trustworthy for consumers in the long run.

Wednesday, November 17th 2021, 6:28AM 19 Comments

by Matthew Martin

David Clark (right) opened the Financial Advice NZ conference.

Dr David Clark, Minister of Commerce and Consumer Affairs (among others), opened the Financial Advice New Zealand annual conference yesterday providing delegates with his vision for the financial services sector and an update on how the new regime is operating.

Clark says he is well aware that some in the industry are struggling to come to terms with the changes implemented over the last few years and have concerns about impending legislation such as the Financial Markets (Conduct of Institutions) Amendment Bill (CoFI) and consumer data rights but is confident the Government has got the balance right.

"The intention is not to interfere with the provision of financial advice but to ensure providers are working in the best interest of consumers," he says.

Clark wants the sector to work together for the financial well-being of all New Zealanders and says financial advisers are critical to the process.

"Your mahi (work) is needed now more than play a critical role in communicating about money, financial literacy and building on common goals.

"It's critical the financial sector comes together to protect the most vulnerable."

Clark says there are many people in New Zealand struggling to make ends meet and this could get worse with rising inflation.

He points to recent statistics regarding the rising number of people applying for hardship withdrawals from KiwiSaver accounts who are essentially using their retirement savings to solve short-term financial distress.

In response to a question from a delegate about the Credit Contracts and Consumer Finance Act (CCCFA) changes and how the major banks have become increasingly conservative in approving home loans, Clark says the point of the legislation is to stop people taking on debt they can't afford to service.

"We are seeing banks being more cautious....inflation is popping up so protections and good advice are important."

Clark also praised the FinTech sector saying the introduction of consumer data right legislation will help the sector "take off" but there was also "risks and apprehension" when it came to buy now-pay later schemes.

He says a discussion paper on the pros and cons of buy now-pay later will help to regulate that sector in future.

He says FinTech is a fast-growing and evolving industry empowering a huge wave of finance and investment tools, such as Sharesies and Hatch, and that New Zealand had jumped 15 positions to number 30 in the world in terms of the use of FinTech by consumers.

Clark says more time and effort will be invested into aligning the various dispute resolution schemes allowing better access to justice for consumers.

He says the new licensing regime has progressed relatively smoothly and encouraged delegates to engage with the Financial Markets Authority and get their licences in place.

"We will find the system will find its own place and rhythm over time but there will be a period of adjustment."

Tags: CoFI David Clark Financial Advice New Zealand Financial Advice NZ annual conference legislation regulation

« Regulation roadblock for retail investmentTough times ahead for NZ economy: Nikko economist »

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Comments from our readers

On 16 November 2021 at 3:55 pm JeffQV said:
He is clueless. There never has been high risk or reckless lending in NZ and all he's done is play into the hands of well heeled investors at the expenses of first home buyers. At over 80% lvr they have no choice, no options other than their own bank and a receding hope of being a home owner. Shame on you
On 16 November 2021 at 4:59 pm Murray Weatherston said:
If he is about the same calibre as the previous four ministers, all he would have done is read the speech prepared for him by MBIE or his ministerial staff.
They are hardly unbiased observers of what the Government has unleashed on the sector, and they wouldn't say anything other than "The Government has got it about right."
Debt to income limits of 6 or 7 is probably the final nail in the coffin for first home buyers ability to buy a house - an $80K household could borrow 480K at 6 times and 560K at 7 times. With 20% deposit required, that limits purchase price $600K at 6 times and $700K. Where will they find that in most of metropolitan NZ.
And that's assuming their bank doesn't think they spend too much money on coffees, Friday night drinks or Netflix so they can jump the CCCFA hurdles.
I hope MPs realise most Kiwis don't earn as much as they do!
On 16 November 2021 at 6:07 pm two cents said:
Smug Ministers like Clark have no idea. Meanwhile, the new regulations and professional hoops and fees have driven up the adviser's cost of business, added to our professional risk and literally doubled the hours needed to complete an application and succeed for the client - for what? Banks just smile and pay the same commissions they did years ago with more hooks. Who wins when good advisers are driven out of business and banks get their monopoly back?
On 16 November 2021 at 9:27 pm Dirty Harry said:
Serious question what's the actual default rate on mortgage debt in New Zealand?

And if we know that, by what measure is it necessary for the cccfa and DTIs?

Or are the lower income earners and the first time buyers just the sacrificial lambs in the pursuit of reversing the Reserve Bank's mistaken over-stimulus?
On 17 November 2021 at 7:35 am Pragmatic said:
Agree Murray. I have engaged with previous Commerce Ministers and found them very under-whelming. I suspect that Clark also falls into this category.

I also agree with JeffQV's observations that the NZ lending system favours 'low risk candidates' at the expense of others who are hoping to borrow. In fact - Tony Alexander noted recently that the NZ lending system has around a 1% rate rise elasticity before there's pressure.
On 17 November 2021 at 7:38 am Skeptical said:
Is anybody else concerned that we got the reject health minister that could not even follow his own ministries health guidance? Dropped from that post and removed from all public facing positions. Several calls were made for his firing in disgrace, instead he gets given the portfolio that governs our industry. Taking on commerce and consumer affairs when he hasn’t worked a day in his life for a business or interacting with a consumer.

He studied theology - quite fitting as with this caliber of minister and this level of regulation it seems that only God can save us now.
On 17 November 2021 at 8:54 am G Richardson said:
Is this the bloke who got lost at the beach during a lockdown? Enough said
On 17 November 2021 at 11:08 am Amused said:
@ Skeptical. Well said. And 100 percent in agreement with other readers comments also.

Our industry and the New Zealand consumer has been saddled with a lame duck MP who probably shouldn't be in Cabinet now based on how he handled his last portfolio. If Hon David Clark actually thinks that regulation of the financial services industry in conjunction with the draconian CCCFA changes is going to benefit the New Zealand consumer he is woefully out of touch with reality. We have had two senior bankers state publicly that borrowers are going to be worse off when it comes to them securing finance in the future.

Far from regulation restoring confidence in the financial advice sector it will instead just cement high paying jobs for bureaucrats at Government departments like the Financial Markets Authority & MBIE and provide an ongoing revenue stream now for education providers like Strategi. These organisations have an agenda in seeing more and more compliance added each year now to advisers and our businesses.

Regulation is supposed to make things better for the consumer not worse. How soon to the next general election?

On 17 November 2021 at 2:15 pm valkyrie6 said:
Burying customers in a ton more of paperwork is actually putting them off seeking independent financial advice, I have already had customers confirm the paperwork has put them off using a regulated financial adviser, now they will top themselves up with the biggest loan debt they will have in their life time with no professional independent advice what so ever.

This is where so called 'regulation’ actually has a reverse effect on the consumer putting them in a worse off position and taking risks they don’t understand.

The current over regulation is “affecting the provision of financial advice" Mr Clark, when you make it hard for customers to seek it, its failed.

I agree with 'Two cents', customers flock back to banks where its “easier” because there is no advice given about anything, until they send you off to a mortgagee sale.
On 17 November 2021 at 4:04 pm Matron said:
Clearly the Minister (pun intended) has not seen or is not track of the number of full FAP licenses issued to date.

It's a bit like a pandemic with not enough ICU beds.
On 18 November 2021 at 8:39 am dcwhyte said:
1. A change of Government won't make any difference - it was National that introduced the draft legislation that Labour enacted almost verbatim. The calibre of Ministers is referred to by Murray and Pragmatic.

2. Strategi has no 'agenda' to see more regulation in the market. Like most responsible participants, Strategi promotes and supports a properly regulated and strong financial services industry.

3. If the strength and depth of feeling is so intense as suggested, get mobilised and support FANZ in their efforts to have CoFI eliminate duplication and overlap of legislation.
On 19 November 2021 at 10:05 am Amused said:
@ dcwhyte

Regulation is the gift that keeps on giving for education providers like Strategi. If the Minister (laughter) consulted your organisation and asked whether you believed that advisers should be required now to complete more educational requirements to be able to give advice to our customers can you honestly say that Strategi would not be in favour of this? Of course you would so you have a financial agenda. The FMA and MBIE likewise see regulation as a “job generator” for more back office bureaucrats to be employed at the tax payer's expense. Money and jobs. That's what regulation has become about now. The consumer is not the key focus.

Unfortunately FANZ has no teeth to affect any positive change for advisers. Nothing earth shattering about that revelation. This Government in particular will do whatever it wants to our industry as they just think they know better than us. We have seen this time and time again across many sectors of NZ society i.e. three waters.
On 19 November 2021 at 11:36 am w k said:
@amused: "clap, clap, clap" exactly my thots.

i also question the authority, why aren't qualifications from ANZIIF and CII not recognised in nz? both have been providing professional qualifications for over 100 years, recognised worldwide, and most CEOs and top management held their qualifications. insurance principles and practices haven't changed since, have they? they couldn't give me an answer.

yup, advisers are "the gravy train".
On 22 November 2021 at 8:24 am dcwhyte said:
@amused - Whether you like it or not, regulation and educational standards are here to stay. Your (apparently) beloved National Party mades sure of that by passing FAA and FSLAA and someday soon CoFI. If any politician consulted with any private educator, I believe that they would be referred to those responsible for setting the standards. And I'm 100% certain that neither David Ireland nor Angus Dale-Jones were guided by any private education provider in setting their respective versions of the Code. But there are some poor disillusioned fools that believe education is the gateway to knowledge and that knowledge at least equips (but doesn't guarantee) advisers to provide better advice and outcomes for consumers.
On 22 November 2021 at 9:48 am dcwhyte said:
Apologies - FSLAA was drafted by National and enacted by Labour.
On 22 November 2021 at 10:55 am Murray Weatherston said:
I think you're looking in the wrong place to see which politicians might have been influential. I don't think any of the Ministers after Dalziel and Power (he jumped ship at the end of 2011) had any influence at all on the regime.
My view is it was largely driven by officials in MBIE (and perhaps to a much lesser extent FMA) and whomsoever they were listening to but certainly not the politicians.
Its not entirely clear who the MBIE officials might have paid most attention to, but I have my suspicions.
On 22 November 2021 at 11:49 am w k said:
in one session, gave some suggestions to angus, he seems receptive, never heard back. our understanding was advisers who have been in the industry long enough, 10-year+ i think?, be exempted from taking these courses. now, not only every mother, father and son adviser have to do the course, they even block ANZIIF and CII qualifications. that says a lot.

@murray: i'm with you on the suspicion bit. it's highly suspicious for me.
On 22 November 2021 at 12:51 pm Amused said:
@Murray & w k - spot on.

Just been speaking to one of my learned colleagues about him completing his Level 5 papers in advance of applying for a FAP license next year. He tells me he now finds himself getting bombarded regularly by Strategi staff telling him he should complete additional courses at $1,500+ each. If that's not called having a financial agenda I don't know what is.
On 22 November 2021 at 5:25 pm w k said:
perhaps there should be law that make it mandatory that ALL politicians have to take some core papers covering finance, economics and public administration.

then if they want to hold portfolios, take the respective strand papers like health administration, education, defense, town planning, criminology, supply chain, etc. PLUS some years of work experience at management level.

this way, we'll have better qualified politicians.

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