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


FMA release draft licence conditions for consultation

Katrina Shanks of Financial Advice New Zealand hosted John Botica from the FMA to talk about the newly released licence conditions. You can find the consultation paper on licence conditions at this link: https://www.fma.govt.nz/assets/Consultations/FAP-full-licensing-standard-conditions-consultation-document.pdf . John Botica started by taking us through a reprise of the options for licence structures, which was valuable given the new classes of licence introduced by the paper for consultation. The consultation outlines three possible licence classes and eight possible standard licensing conditions, as follows:

Classes (Summarised)

  • Class A: Sole practitioner businesses
  • Class B: FAP providing advice on its own account and/or through Financial Advisers
  • Class C: FAP providing advice on its own account and/or through Financial Advisers and/or through Nominated Representatives and/or through engaged entities

Standard Conditions

  1. Record keeping
  2. Internal complaints process
  3. Regulatory returns
  4. Outsourcing
  5. Professional indemnity insurance
  6. Business continuity and technology systems
  7. Ongoing eligibility
  8. Notification of material changes

Further consultation on the regulatory return framework and methodology is planned, date unstated, but noting that such reporting by the FAP to the FMA will not be required during the two-year transitional licensing period.

Subscribers to the quarterly life report will see a review of the conditions and their possible impacts on business structure, digital advice, governance, connected systems, and capital requirements. 


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


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: ASB and AIA to offer joint home loan benefit, and more stores

It has been announced that ASB and AIA are working together to offer current and new ASB home loan customers Compassionate Care. This benefit is free and is intended to offer customers some relief in the instance their co-borrower dies. Customers will be relieved of paying the interest portion of their mortgage for up to 12 months.

“ASB and AIA have launched Compassionate Care, a free home loan benefit for new and existing ASB home loan customers that covers the interest costs for about 12 months if one of the borrowers on the home loan dies.

It comes at no cost to the customer, and ASB and AIA say they have worked hard to ensure the process is simple and easy, with no requirement to sign up or activate the benefit.

AIA chief product and vitality officer Len Elikhis said ASB and AIA had conducted research to understand the needs of home loan customers and determined that the death of a borrower was a significant point of stress.

Not having to pay interest costs would give customers time to work out how they wanted to proceed with the loan, he said.

AIA will be tasked with adjudicating the claims.

It gave the insurer the chance to cover a large group of people, he said, and strengthened AIA’s partnership with New Zealand.” Click here to read more

This is a smart offer. It covers loads of people. As Len Elikhis points out - it is a significant concern to borrowers. It is also relatively low cost and could naturally lead to a conversation about wider cover requirements. This is also not something you have to leave to the big insurers. I know of one insurance broker who advertised free windscreen insurance for any client that bought car insurance with them. Whether the preferred car insurance paid it or not didn't matter - if it wasn't covered by the insurer they just paid it themselves. Good consumer offers like these create opportunities. 

In other news:

The depth of anger at the approach to regulation in Australia is being revealed with news like this: 

Call to boycott Australian financial adviser exam

nib: Lifeline Aotearoa Increases Support As Demand Surges Due To Covid-19

ICNZ: ICNZ And Banqer Partner To Empower Young Kiwis

 


Creative destruction at work

Duncan Grieve writes about the media situation in New Zealand after the incredible news of Stuff being sold for $1 to management. The article is well worth a read. In an economic sense I felt it was awesome advocacy for Schumpeter's creative destruction - a celebration of how new ideas emerge in surprising places, and times. Innovation does occur in large companies, but not usually in very comfortable and monopolistic ones. Disturbance, challenge, and necessity - these drive change. What changes shall we see in the insurance sector as a result of the great shove that 202 has given everything? Well, finally digital moved to the top of the queue for many companies, after languishing for a long time. Product design is definitely under pressure. FSLAA and COFI are going to deliver additional shocks - on top of the economic ones to distribution. 


DAILY NEWS: Australia - huge drop in adviser numbers, expect it to continue

The Australian financial advice industry has declined by almost 18% when compared to the number of advisers in the market this time last year. The introduction on mandatory qualifications, the change in commission structure and monitoring of activity has pushed advisers out of the market.

“Five thousand and twenty-five advisers have left the industry in the last 12 months, while a meager 78 new authorised representatives joined the industry during this period, analysis of ASIC’s financial adviser register conducted by CoreData will show. The researcher pointed out that the number of new entrants to the industry is inflated considering at least half have joined timeshare schemes, an area that continues to be a focus for the regulator.

 

But it’s the bloodletting of advisers from the institutionally-owned licensees that will be a feature of this year’s list and subsequent analysis.” Click here to read more

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In other news:

Financial advisers have a ‘key role’ during pandemic

International vaccine news excites market

$1.5 billion in claims paid, FSC says

Insurers hoping for loyalty out of Covid-19 offers

How insurers moved thousands out of the office and into their homes


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

 


More things not to do during confinement...

...in this case, relax, as David Chaplin has a list of deferred regulations that you won't have to deal with. The list of deferred regulation released by the RBNZ, updated to 9 April 2020, can be found at: https://www.rbnz.govt.nz/regulation-and-supervision/banks/relationships/council-of-financial-regulators-terms-of-reference


How registered companies can apply for a transitional licence

This is a how to for registered companies and other entities to apply for their transitional licence. The following information was kindly provided to us by the Companies Office.

To begin, indicate your intention on the FSPR to apply for a transitional licence, to do so you will need:

  1. a RealMe login, and
  2. an online services account with the FSPR.
  3. Additionally, you may also need to confirm your authority to update information if you are managing an FSP on its behalf.

Updating an existing registration on the FSPR

  1. Log in to your online services account. You’ll be taken to your dashboard. Select ‘Search for an FSP’ under the ‘Do It Now’ menu.
  2. Search for your company or entity either by its name or FSP number.
  3. Select the relevant FSP company or entity from the search results list.
  4. Once you have selected which FSP to update, open the ‘My Tools’ menu and select ‘Change Request to FSP (NZ Entity)’.
  5. You’ll be taken to the change request screen. From here you can either:
  6. select the ‘financial services’ tab at the top of the screen

or

  1. or scroll down the page to the financial services list, select ‘Show’ and select ‘Change details’.
  2. On the next screen you’ll see a list of all the financial services. The transitional licensing services are listed at the bottom, under the heading ‘Financial Advice Service’.

You have the option to select the services:

  1. ‘Licensed Provider - transitional licence’

 or

  1. ‘Authorised Body - transitional licence’.

An authorised body (in relation to the financial advice service) is an entity named on another entity’s financial advice provider’s licence to provide a licensed service. Authorised bodies are still considered to be financial advice providers, but do not hold their own licence. If you are intending for your company to operate as an authorised body, you must tick the grey box ‘Authorised Body – transitional licence’.

If you are intending for your company to hold a transitional licence, you must tick the grey box ‘Licensed Provider –transitional licence’.

  1. Once you’ve selected the relevant transitional licence(s), you can either go straight to the ‘Review’ tab to complete your update, or you can review the rest of your registration by scrolling down to the bottom of the screen and selecting the 'Proceed to directors' button.
  2. On the ‘Directors’ screen, you can check the information about the directors that you have already listed. If you are satisfied that the details are correct, or if you don’t need to add another director, select ‘Proceed to controlling owners’.
  3. On the ‘Controlling owners’ screen you can check the information about controlling owners, if you have any listed, or add new ones. If you are satisfied that the details are correct, or if you don’t need to add a controlling owner, select ‘Proceed to senior managers’.
  4. On the ‘Senior Managers’ screen you can check the information about senior managers, if you have any listed, or add new ones. Once you are happy with the information, or if you don’t want to add a controlling owner, select ‘Proceed to review’.
  5. At this point you have an opportunity to review your details and check that the ‘Transitional Licensing Service’ you selected is visible. To complete the update to your FSP registration, select ‘Read and confirm the declaration here’.
  6. Confirm and click ‘Continue’.
  7. You’ll see an onscreen pop-up confirming your changes have been submitted. From here, click the link to go back to your dashboard, where you’ll see your application is ‘awaiting authorisation’.
  8. You will be sent you an email confirming that you have updated your FSP registration. If you login to your dashboard, your will see ‘Awaiting LA authorisation’ next to your registration. This will remain until the licence comes into effect.

Next steps

Transitional licence

Licensed Provider 

Once you’ve received confirmation and selected the service ‘Licensed Provider - transitional licence’, you’ll need to visit the FMA website and apply for your licence.

You’ll need the FSP number of the company that you just registered on the FSPR. You can apply for your licence by clicking here.

Authorised Body 

Once you’ve received confirmation and selected the service ‘Authorised Body - transitional licence’, you’ll need to provide your company’s FSP number to the financial advice provider whose licence you will operate under. They’ll need this when naming you on their licence application to the FMA. You DO NOT need to apply to the FMA for a licence.