Unpacking the new disclosure requirement

During Financial Advice NZ’s webinar Sharon Corbett and Rose Wang from MBIE discussed the new disclosure requirement. The regulation will be split into three sections. Adviser businesses will be expected to state on their websites the necessary information prospective clients need to choose the right financial adviser. More information will need to be provided when the nature and scope of advice is known. And lastly, more disclosure will be required once the advice is provided. Commission or incentives that advisers or FAPs are paid will be part of the information that needs to be outlined. This is expected to alert clients of potential conflicts of interest.

“The regulations have three parts: The information about a financial advice provider that needs to be on its website to ensure that consumers could choose a FAP that suits their needs, more information given when the nature and scope of advice is known, and a final tranche of disclosure when the advice is given.

As part of that, advisers are required to disclose any commissions or incentives they receive that a reasonable client might think might materially influence their advice.

If the adviser was paid a salary but their FAP received commission that would need to be disclosed if a client might think it would be a factor.”

The goal of the new disclosure regulation will be to give customers all the necessary information that they need in a more efficient way. The change focuses on the type of information disclosed as well as timing.

“Corbett said the focus was on moving away from a tick-box exercise where clients were given information they might not understand or have time to process, to one in which information was given in a clear and useful way at the right time to help clients make good decisions. She said disclosure too early was often forgotten or disregarded and disclosure given too late could risk leaving the client feeling locked in with an adviser.”  Click here to read more

In other news:

FSC: Generations Conference will be held at The Cordis Hotel, Auckland on Tuesday 8 and Wednesday 9 September 2020

FMA: FMA advised of its intention to recruit a new Director of Investment Management to lead a new team responsible for designing, delivering and communicating the FMA's approach to the Investment Management Sector

Next-level client insight service targets NZ advisers


Daily news update: overview of main points from CoFI select committee hearing, and more stories

Insurance and industry associations representatives shared their views on CoFI during the select committee hearing held on 10 June 2020. Participants included, Cigna head of legal Michael Burrowes, AIA general counsel Kristy Redfern, Financial Advice New Zealand CEO Katrina Shanks, Partners Life chief legal, risk and conduct officer Rebecca Sellers, industry expert David Whyte and Anna Black Fidelity Life chief risk officer.

Michael Burrowes head of legal said that the bill was a good idea but was rushed and complex. Michael and AIA general counsel Kristy Redfern both suggested that the bill be delayed. Kristy highlighted that unlike Australia, New Zealand had time to get the bill right. She also warned that the reform was affecting the mental wellbeing of advisers, which could lead to New Zealanders becoming even more underinsured.

“Michael Burrowes, head of legal at Cigna, said the bill was a good idea but there had been a lack of consultation with the industry for what would be a substantial and important regime. The result was rushed, complex and lacked the appropriate clarity and detail.

He and AIA general counsel Kristy Redfern called for the bill to be delayed until FSLAA had bedded in.”

“Redfern said changes to commission rules in Australia had affected the availability of advice and given that New Zealand was underinsured already, that outcome should be avoided. She said the threat of significant reform was affecting advisers’ mental wellbeing. “It’s more important than ever that any additional regulation is fit for purpose and doesn’t create unintended consequences and anxiety.”

She said, because there was no evidence of widespread misbehaviour New Zealand had time to get the bill right.”

Katrina Shanks shared Financial Advice’s concerns as well as saying that it was hard to understand the implications of CoFI as a lot was left to regulations. Katrina also highlighted that that unlike other sectors, the power to prohibit incentives was very strong. Similarly, David Whyte said that it was unclear if advisers were caught by providers’ fair conduct programmes.

“Shanks said Financial Advice NZ had six main concerns: the bill’s power to regulate sales incentives, no definition of “fair”, confusion over whether financial advisers are included in fair conduct programmes, the definition of intermediary, the claims process, and the timing of the bill’s enactment.”

“David Whyte, speaking on behalf of a group of sector participants including Financial Advice New Zealand, the TripleA Advisers Association and Wealthpoint, said the drafting was confusing because it was not clear whether financial advisers were caught by providers’ fair conduct programmes.”

Rebecca Sellers, chief legal, risk and conduct officer at Partners Life highlighted that incentives played an important part in the livelihoods of many advisers. While Anna Black Fidelity Life chief risk officer said that the outcome of CoFI needs to increase customer trust and ensure sustainability

“Partners Life chief legal, risk and conduct officer Rebecca Sellers said incentives played an important part in the livelihoods of many businesses and were a matter of substantive policy that should not be delegated to regulation – though committee member and Labour MP Duncan Webb asked AIA how the rules could be kept up-to-date with a changing industry if they were not in the regulations.”

“Anna Black, chief risk officer at Fidelity Life, said the outcome of the bill needed to increase customer trust and ensure sustainability of the industry over the long term. “Pausing is appropriate.”” Click here to read more

In other news:

Commerce Commission: The Commerce Commission:  announced that it has finalised the criteria it will use to assess whether a lender is “fit and proper” under the Credit Contracts and Consumer Finance Act

Partners Life: Partners Life sponsored the filming for Fight For Time, a story of the Pink Dragons

FSC: FSC 2020 Awards will be held at the FSC Generations Conference Gala Dinner

FSC: Generations Conference earlybird tickets now available

FSC webinar: Introduction to Generations webinar

FSC: FSC’s partner Voices of Hope will be the charity partner for the 2020 Conference


Webinar with Minister Faafoi

Minister Kris Faafoi will be available to discuss FSLAA and CoFI with members. The webinar will be held on 19 May at 10 am.

"Commerce and Consumer Affairs Minister Kris Faafoi will speak to Financial Advice New Zealand members in a webinar on Tuesday, 19 May, at 10am.

As members will know, he’s the minister behind the Financial Services Legislation Amendment Act (FSLAA) and the Financial Markets (Conduct of Institutions) Amendment Bill (CoFI), which is before a select committee. Once the COVID-19 restrictions hit he agreed to extend the transitional licensing application window part of FSLAA to early next year (most likely March), with the new Code of Professional Conduct for Financial Advice Services to come into force at the same time.”" Click here to register

In other news:

Financial Advice webinar: Bring in the Experts

Covid-19 coronavirus: The fishhooks in the govt's 'interest free' small business loans

Behaviour change puts dampener on recovery optimism

Guide to taking part in a rights issue

MBIE: Cash Flow Forecaster


Delay of start of financial advice regime confirmed

Sharon Corbett, Manager Financial Markets Policy, at MBIE has made the following announcement: 

The Minister of Commerce and Consumer Affairs has agreed that the start of the new financial advice regulatory regime set out in the Financial Services Legislation Amendment Act 2019 will be delayed from 29 June 2020 to early 2021.

The new regime is important for promoting consumer confidence in financial advice and the Minister remains committed to seeing the changes through. For now, however, it’s important the financial sector focuses as much as possible on supporting its customers as well as its own staff and their families.

The exact revised date of the new regime will be communicated in due course, well in advance. We expect the new commencement date to be in March 2021 at the earliest. 

The transitional licensing application window will be extended until the same date in early 2021 and the new Code of Professional Conduct for Financial Advice Services will also come into force on that date.

The existing regime under the Financial Advisers Act 2008 will continue to apply in the meantime until the new regime commences.

We are still working through all the flow-on implications from this delay and the necessary legal mechanism to effect this change. We are aware that market participants are at varying levels of readiness for the new regime and that the delay will impact everyone differently.

The FMA has confirmed that transitional licensing will also remain open and the FMA licensing team will continue processing applications as resources are available and in time for the start date of the new regime in early 2021. Those who have already had licences approved or who have already submitted a transitional licensing application will not need to reapply – please see the FMA announcement and FAQs which will shortly be updated.

The disclosure regulations that were due to be made this month have now been delayed so that the commencement dates of those regulations can be updated. We hope to make these regulations available within the next couple of months.

We will be in touch when we have more details to share. We’d be grateful if industry associations could please pass the message onto members.

Thank you for your understanding in these challenging times and we hope that you are all staying well.

Kind regards

Sharon 

Sharon Corbett

MANAGER, FINANCIAL MARKETS POLICY

COMMERCE, CONSUMERS & COMMUNICATIONS BRANCH


Fees and Levies - wanted: the option not in the paper

Numerous advisers have written to me about MBIE's consultation on the FMA fees and levies. In essence, they have spotted that the paper either calls for an increase based on the current approach, or an increase in the portion recovered from market participants. Succinctly, the view of most advisers, which I share, is that if the regulatory structure is all about building confidence in financial services and, if it is so good for consumers generally, then a much larger proportion should be paid for by government/consumers via normal taxation revenues. 


FMA fee consultation - a big increase is sought

FMA Funding consultation by MBIE is announced below. In summary, and very broadly, if the enhanced funding model is adopted with all of the increase funded by increased levies, all current levies would, very roughly, approximately double. 

“As the financial markets regulator, the FMA plays a crucial role in ensuring New Zealand’s financial markets are fair, efficient and transparent,” Sharon Corbett, Manager Financial Markets at the Ministry of Business, Innovation and Employment (MBIE), says. The FMA’s funding was last reviewed in 2016. Since then, the FMA’s remit has broadened and now is the right time to look at its funding."

You can find out more at this link: https://www.mbie.govt.nz/about/news/consultation-opens-on-fma-funding-and-levies/ 

 


Australia: ASIC set to ban cold calling

The Australian Securities and Investments Commission (ASIC) is set to ban cold calling for life and consumer credit insurance sales from January 2020. This has change has been justified as addressing poor sales practices that ASIC believes has led to unfair consumer outcomes. This ban will not apply if the marketer provides the person they are calling with personal advice. It is another sign of the shift in conduct expectations that creates an incentive for a financial provider to choose to step into advice provision and the supervisory regime that surrounds it. We may experience similar incentives in this market. Click here to read more

 


The Value offered by Dealer Groups

Prompted by the recent article on goodreturns I've been challenged to state my view on the value that dealer groups add for the override they are paid. It has been 20 years since I was employed by an insurance company, although in my current business I deal with many. But back when I left Sovereign's employment to launch Quicken.co.nz I had the view shared by many 'inside' insurers that dealer groups offered little value. Over the ensuring ten years my view was changed. Today I have the economist's viewpoint: as most insurance advisers know that the group is paid an override, and many could obtain that themselves (through one of several strategies) they must see value in the groups, otherwise they wouldn't be members. Then, to explore what that is, I just asked a few. Since then - for about the last ten years - I have seen that value demonstrated. The sources vary. From networking and collegiate exchange, adding more training services recently, through to a broad suite of technology services, most of the groups have been adding value in a battery of ways. Whether that can continue to allow that to be funded in the traditional manner will be up to MBIE as they draft the new Conduct of Financial Institutions law. 


FSLAA fact sheets for advisers

MBIE recently added a set of documents under the heading “A new regulatory regime” these documents work clarify doubts advisers may have regarding the new FSLAA regime. There you can find out about all Government decisions and Cabinet papers.

The first document discusses who can give financial advice, conduct requirements, enforcement, and access to advice.

The second document outlines the roles of the FMA, FADC, DRS and Courts.

The third document discusses the duties and liabilities of financial advisers.


MBIE announcements: regulations, fees, delay

MBIE has made a package of announcements, which includes a (minor) delay to the start of transition:

Good morning,

As you are aware, the Financial Services Legislation Amendment Act 2019 (Act) introduces a new regime for financial advice. I am pleased to confirm that a number of regulations relating to the new regime were published today. These regulations give effect to previous policy decisions announced in June this year, and:

Regulations are unable to come into force until at least 28 days have passed from the date they are notified in the New Zealand Gazette. Accordingly, the regulations needed for transitional licensing will come into force on 25 November 2019, while the remainder of the regulations will come into force on 29 June 2020.

The regulations relating to licensing fees and registration need to be in force before the FMA can start processing licence applications. Unfortunately this means the FMA will be unable to start accepting transitional licence applications before 25 November 2019. The FMA will provide an update on the new transitional licensing date later today. I apologise for any inconvenience that this might cause.

For more information regarding the new financial advice regime, please visit www.mbie.govt.nz/faareview or https://www.fma.govt.nz/compliance/role/fap-new-regime/.

Kind regards

Sharon Corbett

The FAA Review Team