New financial advice regime start date set, disclosure regulations resources, and more daily news

After being delayed because of COVID-19, MBIE have announced that the new financial advice regime will begin on 15 March 2021. In addition to the new date being set, the Government has set new disclosure requirements as part of the Financial Services Legislation Amendment Act to ensure that customers have the ability to make more informed decisions. Advisers will be required to disclose their services and other relevant information. This will allow potential clients to decide if the service on offer is right for them.

“The new disclosure requirements will require businesses and individuals who give financial advice to disclose important information about their services to their clients.

“The disclosure requirements are set in regulations under the Financial Services Legislation Amendment Act, which introduces a new regulatory regime for financial advice,” said Sharon Corbett, manager financial markets at the Ministry of Business, Innovation and Employment.”

On disclosure, the details confirm that as expected a progressive disclosure regime is being put in place, much along the lines suggested by the consultation. We think that is good - it makes sense, and it allows the right level of information for each stage of the sales process. It will not please everyone, some prefer the certainty of fixed requirements that are all dealt with at a specific point in time, especially if they have a very simple (and short) advice process.

UPDATE: because I was asked: yes, dollar disclosure of commission payments is required. A range might be disclosed at one point and a specific figure disclosed when known. 

More important, perhaps, is the start date for the new regime. I cannot underline enough how important compliance assurance is as you come up to this date. There are some simple steps you can take to get yourself to a point of comfort. 

  1. Refer to a detailed list of all the reference standards required to achieve compliance - call or write to ask me for such a list if you need one.
  2. Conduct a gap analysis against the full range of requirements.
  3. Start at the top - ensure your governance structures are in place, this is the engine that drives all effective compliance practice
  4. Fill in the processes required against the gaps identified, reporting into your governance process on a regular basis

Much of the commentary does not link directly to the documents, so here is a good digest of links for you: 

The MBIE media release: https://www.mbie.govt.nz/about/news/disclosure-requirements-and-commencement-date-set-for-new-financial-advice-regime/

The disclosure requirements page on MBIE's website: https://www.mbie.govt.nz/business-and-employment/business/financial-markets-regulation/regulation-of-financial-advice/regulations-to-support-the-financial-services-legislation-amendment-act/disclosure-requirements/

The overview of the disclosure regulations: https://www.mbie.govt.nz/dmsdocument/11508-regulations-setting-out-disclosure-requirements-in-the-new-financial-advice-regime-overview

The FMA's media release on the start date for the new regime: https://www.fma.govt.nz/news-and-resources/media-releases/fma-welcomes-start-date-of-new-financial-advice-regime/

The regulations in full: http://www.legislation.govt.nz/regulation/public/2020/0132/latest/whole.html#LMS177125

 

In other news:

Fidelity Life: New Learning Management System for product accreditation and eLearning to be launched soon, Fidelity Life: New Sharecare challenges will begin 1 July 2020

Fidelity Life: Golden Life Plan will be no longer be offered to new applicants from 1 July 2020

Financial Advice NZ: Bring in the Experts: Disclosure Requirements with MBIE

Mixed response to full licensing details


CoFI submissions available online

Submissions on the Financial Markets (Conduct of Institutions) Amendment Bill have been released on the Parliamentary website. Available via weblink at https://www.parliament.nz/en/pb/bills-and-laws/bills-proposed-laws/document/BILL_93443/tab/submissionsandadvice?Criteria.PageNumber=1

The release of the submissions was highlighted for us in the Investment News e-mail received recently, with the specific COFI story available at https://investmentnews.co.nz/investment-news/amp-finds-cofi-hard-to-swallow-industry-calls-for-sweeteners/

Noting that there are 53 submissions, I am, of course, glad to see the quote from one of our preferred compliance consultants (Rob Dowler) who had their submission selected and included in the Investment News article.

I encourage readers to consider the article. In particular the central question of having different principles for each participant, and the limited range of initial participants. Contrast that with the suggestions for a single set of requirements for fair treatment, and extending these to a wider range of companies. 

As submissions are supported by the exploration at Select Committee hearing next week it will be interesting to hear if the definitions of incentives may come in for some discussion. Regular readers will know that we consider the definition to be too vague for distributors to have long-term confidence in the approach to remuneration - discouraging investment and delaying a shift to more spread commission models preferred in Australia.

 


Daily news update: advisory firm established by former head of BNZ Private Bank, and more stories

Investment advice businesses appear to have been experimenting with different structures to manage, mitigate, or eliminate conflicts of interest for some time. See story below. I have heard of a few in the insurance sector - usually people offering options rather than an entire change of business model - but they are rare. Models that I have see offered: true nil commission options with a fee for placement, another Advice for fee and no offer of placement, another fee and commission refund (varying terms), and others simply presented hourly paid options. We have not yet seen these coupled with environmental, social, or governance goals explicitly as in the case below, although often proprietors are concerned about those issues, they are not wired in to the business. Perhaps that's an opportunity. 

Donna Nicolof, who was the former head of BNZ's Private Bank has established Pāua Wealth Management. Donna has stated that the firm is determined to eliminate any conflicts of interest and remain independent. When analysing and making decisions, investment managers will be required to consider different external factors including environmental, social, and governance factors.

"Pāua Wealth Management has created a business model to support the independence and integrity of its advice and remove potential conflicts of interest, Nicolof says. She has said no to product commissions or referral fees in favour of a fees-for service approach.

“We believe New Zealand investors deserve truly independent advice and the better outcomes this delivers. We only receive fees agreed to by clients so they can be confident that we act only in their best interests,” she said.

“We do not manufacture investment products and our advisers are not incentivised to sell particular products or trade on clients’ portfolios, which can create conflicts of interest. We are motivated by delivering quality advice and superior service,” she said.” Click here to read more

In other news:

Brokers on lost business, insurer response and government support

NZ’s largest travel insurer restructures, halves staff

Three big things that are forcing consumers to re-think


Daily news update: AIA offer advisers commission boost, and more stories

It has been announced that AIA will be offering additional support to advisers. In the announcement AIA stated that they will be offering advisers commission boosts in two parts. The first will be focused on offering advisers 20% extra Basic Initial Commission on AIA Living applications submitted using eApp. This offer is being extended until 1 September 2020. The second method will be to offer a commission boost as part of their small business support package. AIA is looking to offer an additional 20% Basic Initial Commission on AIA Living applications submitted using eApp. This offer will run from 2 June 2020 until 1 September 2020.

“So far, 2020 has been a challenging year for us all. At AIA we want to help support you, your business, and your clients to make 2020 memorable for the right reasons.

We know from your feedback that the current biggest issue for you and your business is cash-flow.

That’s why we’re excited to be launching our 20/20 in 2020 offer that has two components: sharing the value of going digital and our new small business support package.”

In other news:

Professional IQ: Professional IQ launches level five version two

Digital advice the mass market solution: Carlyon

Economic crisis just getting started, says ASB


DAILY NEWS: Unpacking Minister Faafoi and Financial Advice NZ webinar, and more stories

During the Financial Advice NZ webinar, Minster Faafoi spoke about his commitment to ensuring that the conduct bill progresses while also highlighting that he is conscious of the importance of having enough lead-in time. During the webinar, the Minister spoke of how the Government understands that commissions are a legitimate way of paying advisers and as a result, the Government isn’t seeking to ban commissions, instead is looking to end target-based incentives. 

“In a webinar with Financial Advice NZ, Faafoi acknowledged that concern and said he did not want the conduct regime to add another layer of complexity of regulation on top for advisers.

The bill in its current form also allows regulations to dictate remuneration structures, which some industry participants have expressed concern about.

Faafoi said Government recognised that commissions were a legitimate way of paying advisers for their “important work” because consumers were generally unwilling to pay for financial advice. He said the Government was aware that commission structures were the way the sector had operated for decades.

“It is not the Government’s intention to ban all commission.” Click here to read more

It would be a great relief to advisers and insurers if it could be clearly discerned from the Bill that the power to ban commissions is reserved. At present the definition of incentives in the law can be read as including all normal commission payments, which is unnerving when long-term decisions need to be made. 

In other news:

Suncorp: Kate Armstrong joins Suncorp’s NZ boards

Suncorp: Suncorp earmarks further NZ$2 million for hardship fund

FMA: Transitional licensing continues at a “steady rate” despite COVID-19 delays – FMA

AIA: AIA new business value slips 27% after coronavirus disruption

 


Fidelity prolongs registration date

Fidelity Life have extended the registration period for Customer Engagement 2020. Advisers now have until 6 April 2020 to register to be in the running to attend a Thought Leaders forum in Te Anau in October.

Key points:

  • Runs from 6 March – 31 July 2020
  • Based on Net Promoter Score – a measure of customer satisfaction
  • Top 30 advisers plus partners attend a special forum in Te Anau, 14-16 October 2020
  • Advisers need to register by 6 April to participate

Click here to register


Deep dive into client base valuations - and a comment on risk

We worked alongside Kurt Owen of Base to offer advisers insight into the factors considered when determining the value of an adviser’s client base and overall business. Click here to understand what does into an accountant’s valuation of a client base with input from a life insurance expert.

Please bear in mind that this is a framework presentation and the material in the presentation is illustrative only. The market has received some substantial shocks, and with new draft conduct law on the horizon, which appears to establish a framework that could ban commission, there are substantial risks in the medium term outlook. 

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Insurers: get a transitional licence or we stop paying

In an admirably blunt statement of the need to get moving Fidelity Life has told advisers that they need to get a transitional licence or they won't be working with them. That was from an email on March 4.They are not alone. Several insurers are now recommending advisers apply for their transitional licence no later than mid-April. I think that’s good advice. So you now have a maximum of five weeks to apply.

Some insurers will choose to only do business with distributors that give financial advice and therefore must have a licence. I expect that financial advice providers will have to give the insurer their details if they are to continue to work with a product provider – otherwise, no agency, and therefore, no commission. I plan to expand on the consequences of failure to get a transitional licence - including the possible loss of renewal commissions - next week.

In exceptional cases, where a business model is clearly sales with no financial advice, an insurer may choose to continue working with a distributor. However, I would expect that to apply to very few agency relationships.