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[OPINION] What I would like to see in 2024

The progress of the industry continued in 2023 and most events – at least in the local financial services industry played out much as expected. In the macro-sense, events such as the wars in Ukraine and the Middle East impacted the economy in NZ as it did everywhere.

Saturday, December 9th 2023, 6:04AM 4 Comments

by David Whyte

For the domestic political scene, the recent change of Government was the most significant event which is likely to have repercussions for industry stakeholders.

If, as promised, the new Government repeals CoFI, few will shed any tears. However, one provision contained in the Act, specifically, the Fair Conduct Programme (FCP) requirement, has been acknowledged as valid, progressed by most product providers, and has considerable support in the wider industry.

It is not that long ago that we saw Collateralized Debt Obligations CDOs) being marketed as being akin to Term Deposits and foreign currency swap derivatives being sold to farmers in the Waikato. Add in the Credit Card Insurance Protection ‘arrangements’ - now abandoned, and the case for a legislative framework around a Fair Conduct Programme begins to build.

Furthermore, FMA imposed penalties for misrepresentation and failure to meet policyholder commitments in the Life Insurance space have exceeded $10m so far.

Having worked at senior level within two of NZ’s major product providers, I believe an FCP regime is entirely appropriate. Whether that requires another license to be applied for, administered, issued, supervised, etc., I prefer to leave to wiser heads than mine. Suffice to say that product providers have an RBNZ license which is already looking at the Conduct issue within the IPSA review and the perception of duplication, over-reach, and over-regulation is almost inevitable.

And here is another item I would like to see if the new Government is listening – Nominated Representatives - nominated by product providers to sell their employer’s products - are regarded as having the same obligations as Financial Advisers operating under a non-aligned Financial Advice Provider license. It is fairly evident that the two classes of operatives fulfill distinct and contrasting functions and act on behalf of different stakeholders. Nom Reps are provided with a contract for, or of, service with the prevailing obligation of providing an economic return to the product provider. Financial Advisers, on the other hand, have a de facto fiduciary duty to place the clients’ interests ahead of their own.

I would like to see this distinction made clearer to consumers so that the implications of dealing with a product salesperson representing their employer, as opposed to a Financial Adviser operating exclusively on the consumers’ behalf on a market-wide perspective, are fully understood.

Some providers have been quick off the mark to seek confirmation that FAPs and their Financial Advisers are meeting the provider FCP requirements articulated in CoFI. Whether CoFI is repealed or not, I contend that this is completely the wrong way round – FAPs should be requesting of the product providers with whom they have commercial relationships that those providers are adhering to the provisions of their own FCPs! Financial Advisers have a de facto fiduciary duty to act on behalf their clients.

It follows therefore that any product solution should be supported by evidence that the product provider is meeting the standards set by their own FCP. Product provider service standards can vary from time to time and can be a valid selection factor beyond just product definitions and specifications.

FAPs have a Code of Conduct and legislative instruments to comply with – instruments which are supervised and enforced by the FMA. Product providers should present product solutions which are fit for purpose, represent acceptable value for money, and can be suitably applied by Financial Advisers to meet client needs. But the ultimate arbiters of product suitability will be the consumer and, if applicable, their Financial Adviser. Hence, as part of the Financial Adviser’s due diligence - which extends beyond just the cost, benefits, terms, and conditions of the product – evidence should be requested of the recommended providers’ bona fides.

In a competitive marketplace, product providers should earn the right to be recommended to consumers by non-aligned FAPs and their Financial Advisers, based on the merits of their products and services.

So, I would like to see FAPs requesting material evidence of product providers delivering good consumer outcomes as reflected in the Fair Conduct Programme regime.

From an industry perspective, I would like to see 2024 deliver closer cooperation between FAPs and product providers. Specifically, I would like to see the two main industry bodies, FSC and FANZ, embark on a programme of identifying issues of common interest which can be addressed jointly and collaboratively.

This does not imply a loss of sovereignty by either body but points to the industry collectively acknowledging separate responsibilities while seeking to deliver better outcomes to consumers. Regulators around the world will frequently acknowledge input from various sources but just as frequently point out that the source may not represent the whole industry. In this context, a more unified effort based on functional cooperation on an issue-by-issue basis will serve all stakeholders more effectively.

Another issue I would like to see in 2024 is a comprehensive review of Kiwisaver. The product has been around long enough now – unchanged since inception in July 2007 – and it is timely to review whether the structure is still fit for purpose, or whether other measures and objectives can be incorporated to promote further success.

Industry statistics indicate that 90% of the population between the ages of 18 and 65 has a Kiwisaver account, so I would like to see Kiwisaver made compulsory. And there are some fundamental questions I would like to see addressed, namely –

  1. Can it be contemplated that Kiwisaver will eventually supplant NZ Super? The latter is not means tested, is paid to a cohort of the population that is neither retired nor in need of the income and creates a political dilemma for any Government attempting to link retirement age with contemporary mortality rates.
  2. Encouragement for Kiwisaver providers to invest in NZ private equity following the innovative approaches of Booster, Generate, and Simplicity. Our share market is small and funding enterprise via the NZ Bourse is problematic. But a prudent percentage of Kiwisaver funds – which does not prejudice liquidity - made available to invest in housing or other suitable local industries would stimulate enterprise and innovation and help retain the output of Kiwi ingenuity within the country.
  3. As an adjunct to the above, I would like to see the politicians stop tinkering around with Kiwisaver. Student bonds, sharemilker deposits, etc., are measures which merely facilitate stealing from your own future. I would also like to see Kiwisaver access to funds for first-time house buyers replaced with a separate, stand-alone, tax-advantaged savings account, thus leaving in place the Kiwisaver contributions that have been invested for longest. The Brits have long since run with Individual Savings Accounts (ISAs) with set contribution limits and where the interest accumulates free of tax. The trade-off is two-fold – the Superannuation Funds are locked in until retirement age and the accumulation within an approved Super Fund is tax exempt. This structure, or similar, is prevalent in most OECD territory except NZ and provides Governments with ready made capital to fund infrastructure developments in exchange for long-term Government stock offerings. In Australia’s case, those funds now exceed A$3.5 trillion, driven by compulsory contributions and preferential tax treatment. I have seen protest raised around tax relief for Super based on the premise that this disadvantages a segment of the tax-paying population. Well, with 90% already in Kiwisaver, we ARE the taxpayers so stimulating further saving with a tax-exemption on funds roll-up is hardly creating a disadvantage for contributing members of the community.

Finally, I would like to see the FMA continue its excellent work in 2024. The transition from consultation and engagement to oversight and enforcement has been professionally managed and all stakeholders have benefited from this, particularly consumers. As I have alluded to elsewhere, the regulatory experience in NZ is far more conducive to better outcomes than the adversarial and antagonistic intra-industry relationships in either Australia or the UK.

So, while I remain optimistic for 2024, I would like to see the issues raised here given some airtime and debated in the spirit of cooperation, hopefully to produce better outcomes all round.

David Whyte was the general manager of AIA New Zealand and chief executive of the Ginger group. He know runs DCW Consulting.

Tags: Opinion

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Comments from our readers

On 10 December 2023 at 12:09 pm Maxwell K said:
I found your article very interesting and your wish list not at all unreasonable and I am most in agreeance with.

In regards to your comments on the FMA I certainly endorse.

My only comment I would add is I am very disappointed that FMA didn't ask the robust and difficult questions around the IPO listing of MY Food Bag and subsequent events. From $1.85 listing share price down to under 12 cents today.
Surely the retail shareholders are at least worthy of an explanation?
On 11 December 2023 at 4:16 pm Ontheotherhand said:
My independent research (which would fail the FMA paperwork and justification test) raised several red flags with MFB. Sharebrokers that were selling it seemed to think it was the cat's whiskers. Did you mean FMA should be looking into the sharebrokers? Several fund managers seemed to get it wrong too.
On 12 December 2023 at 5:14 pm Maxwell K said:
Ontheotherhand. Yes,I think the FMA should be looking into the brokers, even at this last change.

I wrote to one of the three brokers involved in arriving at the IPO listing price plus some other issues I had. I also made my concerns known to FMA.
No surprise neither had the courtesy to respond.

I have been an investor for over 50 years and using my valuation model I couldn't get even close to the brokers valuation in determining a fair listing price.

In my view, the best interest of potential investors in arriving at their listng price was never their intent, but rather a exit price for their former backers and owners.

The only person I witnessed that soke out about the debacle of the MFB listing was the late Bryan Gaynor.

Shameful in my opinion.



On 15 December 2023 at 1:54 pm Murray Weatherston said:
Can I add 2 things I'd like to see.
1. From the FMA - an update of where things are with the the professional advisers who allegedly gave false certicates to investors who may not have qualified for professional investor status?
From the life insurance companies - a statement as to whether NZ staistics are showing a material increase in both the death rate and mobidity rate of adults aged say 25 to 50 as is appearing in the USA?
But I won't be holding my breath for responses to either of them.
Merry Xmas to all GR readers.

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.45 7.05 6.85
ANZ 8.64 7.99 7.49 7.35
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.39 6.89 6.75
ASB Bank 8.64 7.39 6.89 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.35 6.89 6.79
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.95 7.65 7.45
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 7.15 - -
Co-operative Bank - Owner Occ 8.40 7.35 6.89 6.75
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.85 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.85 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.59 7.29
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.35 6.89 6.75
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.90 7.39 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.95 7.45 7.29
SBS Bank Special - 7.45 6.95 6.79
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 7.05 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.19 7.55 7.55
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TSB Special 8.64 7.39 6.75 6.75
Unity 8.64 6.99 6.85 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.45 7.37 6.79

Last updated: 14 February 2024 1:37pm

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