Katrina Shanks, CEO of Financial Advice New Zealand says the Select Committee review of the Financial Services Legislation Amendment Bill (FSLAB) has fallen short of the mark for both Kiwis and the advice profession.

“We ask that Minister Faafoi take another look, particularly at the demarcation between Sales and Advice.”

“In our submission we highlighted that to support good outcomes for Kiwis, we must provide clarity and ensure the public understands the difference between sales and advice, and the various types of advisers.”

“As it stands, the Bill only provides a definition of regulated financial advice but is silent on the definition of ‘product advice’. This decision could have been made in the Select Committee, and would have provided a stronger framework for the Code – and for Kiwis and advisers - on this crucial line-in-the-sand.”

Two other key issues highlighted by Financial Advice New Zealand are: the risk of lowering professional standards; and the continuing lack of certainty about the impact of the new regime on small adviser firms.

“While the Code will set standards, the Bill sets the tone. The public deserves to know that the advice that they receive is from a person held to consistently high standards right across the industry. The current Bill leaves room for standards to be set at the lowest common level.”

“Sole practice or small adviser firms are crucial in ensuring that Kiwis can access financial advice – a point we highlighted in our submission. A key objective of the review was to ensure public access to advice, however the Bill does not bring any certainty to small adviser firms in terms of the cost or business impact of the new regime.”

“On these issues, the Bill does not reflect the core purpose of the original legislation, the Financial Adviser Act, which was to ‘encourage’ public confidence in the professionalism and integrity of financial advisers. This may ultimately mean that the Kiwi public have less choice when accessing a financial adviser.”

While the Select Committee has left key issues on the table, Shanks say the amended Bill does include some welcome news for Kiwis.

Client-first

The Bill has strengthened the duty to give priority to client’s interests, which includes responsibilities such as disclosure and addressing conflict of interest. “We welcome this greater emphasis on putting clients first: it is pivotal in encouraging confidence and trust in financial advice and in doing so, helping more Kiwis benefit from working with a quality adviser.”

Switching Management Investment Scheme Funds (KiwiSaver)
KiwiSaver and Management Investment Scheme Funds now fall within the regime of regulated financial advice. “The Bill requires that KiwiSaver and other Management Investment Scheme Funds advice only be provided by a qualified and competent adviser; a welcome protection for Kiwis.”

Nominated Representatives

The Bill strengthened clauses relating to Nominated Representatives in the best interests of clients. In particular, it requires the organisation to have processes and controls which are complied with, and competence, knowledge and skills that are monitored. “The Bill also states that an organisation’s policies cannot influence behaviour by providing money or other incentives. This is a great step in addressing conflicts of interest and ensuring the client’s interest are the central priority.”

Exclusions from Financial Advice
The Bill has maintained exclusions and introduced limitations to advice professionals can give within their ordinary business. This extends to professional services such as accountants and lawyers. “We advocated for no exclusions in the legislation but are pleased to see the inclusion of strict limitations.”

Disputes Resolution
The Bill has introduced a clause requiring that any material information that may breach the law be shared with the Regulator by the Disputes Resolution Provider. We are supportive of the sharing of information and the greater transparency.

Licencing
The Bill requires that a licensee meet the criteria to offer financial services, and further instructs the FMA to disregard the transitional licence held when reviewing an application for a full licence. "This ensures standards are maintained and that the public can have trust and confidence in their financial provider,” says Shanks.

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