The submissions on disclosure regulations have been released by MBIE. Although the response was largely positive, some concerns were raised about the disclosure requirements set to come into place on 15 March 2021.
AMP highlighted the risk of repetition without addressing issues currently being undervalued by consumers. To ensure value is added AMP suggested that disclosures need to be simple and brief, something AMP doesn’t believe has been achieved by the current draft.
“AMP said there was a risk that the disclosure would end up being repetitive and not address the issue of long, impenetrable disclosures not currently being valued by consumers.
“For benefits to be delivered to New Zealand consumers it is essential for disclosures to be simple, meaningful, very brief and unobtrusive. We do not consider that these aims would be met with the regulations as drafted.”
Under the new rules, advisers are required to disclose any commissions or incentives they receive that a reasonable client might think might materially influence their advice.”
While Financial Advice said that a reasonable person wouldn’t have a good grasp of identifying conflicts of interest within the industry and that the regulation could be strengthened by having higher standards in place. Financial Advice highlighted that there are many references to ‘incentives’ so including a definition and reference to ‘disincentives’ would be valuable.
“But Financial Advice NZ said a reasonable client would not expect to have a good grasp of identifying conflicts of interest in the sector.
“The regulation could be strengthened by having a higher standard, such as – ‘any interest of A, P, or any other person connected with the giving of the advice that has the potential to influence the advice given by A’.
“There are various references to ‘incentives’. We recommend including in the regulation a definition and reference to ‘disincentives’ as well. For example, a reduction of commission rates for low volumes could escape the disclosure regime. Disincentives is an area that is often overlooked and should be drawn attention to, so FAPs and advisers cannot avoid their disclosure obligations by saying ‘this disincentive is not technically an incentive’.””
AIA stated that there should be further clarification on was is “practicable” for advisers to include and highlighted that this would cause significant issues for financial advice providers. Although AIA doesn’t see this as an issue as they are prepared to invest in the appropriate systems to aid advisers.
“AIA said there should be more detail on when it was considered “practicable” for advisers to include in their disclosure the amount of fees payable by a client connected to the advice recommendation.
“This is a significant issue for financial advice providers. For AIA NZ, significant system investments will be required to provide estimates. While AIA NZ anticipates making this investment, we are concerned that other providers may choose not to do so, and instead elect not to provide estimates on the basis that it is not practicable to do so. This is an undesirable outcome for consumers which we consider could be avoided by better articulating the circumstances when providers may elect not to provide estimates.” Click here to read more
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