1 Comment 1 Commentby Sally Lindsay
At its nationwide roadshow last week, NZFSG head of outcomes Trecia says customers are benefitting from stronger protections and clearer information.
However, she says the level of transparency is yet to be measured and whether this gives customers greater confidence, enabling them to make well-informed decisions and fully understand both the value and cost of the advice they receive.
As one of the country’s, biggest aggregators, NZFSG says 118 financial advisers left the industry between 2003 and 2004, but it remains healthy.
FMA figures show a total of 8,472 financial advisers at the end of September last year, compared to 9,300 in 2021.
Just over 1,400 licensed FAPs submitted a regulatory return last year, giving the first comprehensive snapshot of the financial sector since the new financial advice regime swung into effect in March 2023.
By far the majority of FAPs – 948 – are class 2 providers, who employ several advisers providing advice to retail clients in person or digitally and/or have authorised bodies under the licence; 406 are class 1 providers, working as a sole adviser business or give advice digitally; and 58 are class 3 providers, giving regulated financial advice to retail clients via nominated representatives and/or authorised bodies under their licence and or/digitally, subject to the limitations in the FMC Act.
Class 1 FAPs have 169,064 clients and 1,541 wholesale clients, class 2 have 3,192,605 retail clients and 44,651 wholesale clients, while class 3 FAPs, which include the country’s biggest banks who count most customers as financial advice clients have 15,361,237 retail clients and 14,182 wholesale clients.
A significant majority of licensed FAPs have been in the market for over five years, indicating a well-established presence.
Brown says a plus for the industry is advice is now accessible both online and in person, making it easier for people in remote or underserved areas to obtain financial advice. There are
36 FAPs providing digital advice and 86,500 retail clients receiving advice that way.
While it is difficult to directly measure whether the quality of advice has improved, she says there has been a noticeable improvement in record-keeping as NZFSG has found in its file reviews.
“There are more comprehensive disclosures to customers, and greater attention to identifying and addressing vulnerabilities.
“As a direct response to not meeting these requirements, it has led to instances where advisers have been terminated by FAPs and providers when breaches have been verified.”
Between 2022 and 2024 NZFSG axed 30 advisers, which Brown says was to protect businesses as well as its licence.
Under the industry’s complaint and dispute resolution processes, 97% of complaints have been resolved within three months, which Brown says is showing effective dispute resolution.
As there has been an increase in disputes, she says it indicates that the process has become more visible and accessible.
“The improved record keeping of complaints has also provided more insights for the industry in where improvements can be made. It is an opportunity to improve advice and support to customers.”
Further improvement will come as advisers are now required to participate in ongoing education and training, ensuring they stay up to date with financial products, regulatory developments, and ethical standards.
Brown says this means customers can expect to receive guidance from professionals who are genuinely equipped to meet evolving needs – if advisers engage meaningfully in their continuing professional development, rather than simply fulfilling the minimum requirements.
“The changes recently announced to code standard 9 will not affect our reviews much as we pre-empted the changes and have been assessing the revised standards for the past year or two, so advisers shouldn’t feel any real change.”
Although legislation has made it mandatory for businesses providing financial advice to be listed on the Financial Service Providers register, ensuring customers can easily identify qualified advisers to protect them from or unqualified providers, there have been isolated cases where some people have sought advice from unlicensed advisers. Brown says regulators have been swift to deal with these.
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Let take the average Mortgage adviser that has their own FAP licence.
99% of these advisers will be compliant with their FAP license requirements and taking time and effort to meet their FAP requirements which is great and better for the industry.
But because the banks and lenders will only let a select few have Header agreements or Header FAPs with them directly all the other FAP; s are forced to belong to one of these header FAP’s.
These Header FAPs are forcing all its members (including FAP licence holders) to be compliment under their header FAP essentially treating other FAP licence holders as authorised bodies under the group licence.
What does this do? it basically doubles the amount of regulation a single FAP licence holder has to do as they are repeating regulation requirements twice under their own licence and then again under the header group licence.
This may not be what the FMA intending licencing to be but for most FAP license holders they are wondering now why they all just didn’t go under one header licence and be done with it then the FMA would only have a small few FAP licences which in turn would defeat the whole licencing function.
How does this effect the consumer?
Over regulated Advisers have to pass a lot of this onto the customers they engage but bank staff do not, so is it in the banks best interest to push more regulation requirements onto advisers? maybe. Some customers rather that read and compete a 42-page form will just go direct to a bank branch with no advice given.
The Master/header FAP agreements groups have with lenders is their sole strong hold /monopoly over mortgage advisers.
Dealer groups /master FAP holders, also create behind the scenes referral structures based on bulk referrals by their members, where the groups receive back-office referral income that are not disclosed to the advisers let alone the public or the customer , these include forced training , file reviews , PI insurance schemes , house and personal insurance referrals , all charged to the adviser or dealer groups clipping the ticket.
Advocates for advisors I think not.