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Professionalising financial advice in NZ: raising confidence for all consumers?

by Caroline Falshaw | 24 Oct 2017

While the general election has been the most gripping coverage in New Zealand in recent weeks, substantial reform of the Financial Markets Conduct Act is underway that will create a new regulatory regime for financial advice.

Many elements of the New Zealand regime dovetail reforms in Australia that will mandate a minimum standard of education for financial advisers and define a code of conduct that will apply across the industry. In Australia, this work sits with the newly-created Financial Adviser Standards and Ethics Authority (FASEA) led by Dr Deen Sanders. In New Zealand, Angus Dale-Jones has been appointed to chair the Code Working Group (CWG) that is expected to finalise the new financial adviser code of conduct by August 2018.

These reforms are part of an overall shift to enshrine minimum expectations of culture and conduct in regulation. While markets like the UK and Australia have had more critical issues of consumer distrust to rectify, the professionalisation of the NZ advice industry is no less important.

In August the Financial Services Legislation Amendment Bill was introduced to New Zealand Parliament — the culmination of a review process that commenced in 2014 and included customer focus groups about how financial advice is received (and perceived) by the community.

Main elements of the NZ reforms

  • More types of financial advice — The new regime takes a technology neutral approach to allow for more types of financial advice. It will do this by removing restrictions that require some forms of financial advice to be given by a ‘natural person’. This, and the recent announcement from the FMA opening applications for personalised robo-advice, will pave the way for robo-advice in the New Zealand market.
  • Duty to give priority to client’s interests — Currently, this obligation only applies to authorised financial advisers covered by the professional code. Under the proposed new laws this duty extends to all persons who give financial advice.
  • Code of conduct — The CWG’s consultation on the code is underway. It will apply to more advisers, and include minimum standards of competence, knowledge, and skill that apply to particular types of financial advice and products.
  • Fewer individuals will be classified as wholesale — In an important extension of retail protections, the definition of a wholesale client will be aligned with the wholesale investor definition in the FMC Act. This will give more individuals retail protections. Certain clients that are classified wholesale will be able to opt out of this designation for particular services or all services given by a financial advice provider.
  • Licensing of retail financial advisers — Anyone who provides financial advice to retail clients will be required to be licenced, with licences issued at the firm level to reduce complexity.

The new regime is expected to take effect from May 2019. With transitional arrangements for licences, the regime is expected to be fully operational by May 2021.

Concerns in the advice community

As we recently reported in InFinance, there are concerns in some sections of the advice industry that the reforms will disadvantage smaller advisers who contend that they will disproportionately feel the compliance burden.

Issuing licences at the firm level is also a bone of contention — it might reduce complexity, but potentially is at the cost of professional pride in being individually licensed as lawyers, doctors, and accountants are.

In a recent interview, Dale-Jones described the code as customer-centred rather than occupational. This may prove to be a critical difference in the Australian and New Zealand approaches to regulating the financial advice market.

More industry professionals stand to be captured by minimum competency requirements in NZ than currently — a regulatory approach that is very familiar to Australian audiences where new advisers from 2019 will need to be degree qualified and complete a professional year. It is uncertain at this stage what qualification and CPD requirements the CWG will impose.

Confidence and trust an issue for different consumer groups

The question remains: will the new advice regime, centred on lifting competence and professional conduct, improve consumer trust?

Figures from the Financial Markets Authority show that the New Zealand advice market is skewed to individuals with reasonably high amounts of investible assets.

Overall, confidence that NZ is effectively regulated has risen over the five years that the FMA has tracked attitudes to financial markets

FMA - confidence overall

However, the same research finds differences in levels of confidence that New Zealand’s financial markets are well regulated. Generally, people that are aware of the Financial Markets Authority and the role it plays in regulating the New Zealand market are more confident than those that aren’t.

Interestingly, this divide occurs not just between ‘informed’ and ‘uniformed’ consumers, but along gender and socioeconomic lines. Both high income earners, and men overall are more confident.

FMA - Gender divide in confidence

These findings mirror the divide charted in the Edelman Trust Barometer between ‘informed’ and ‘general’ publics on trust in institutions including business, government, media and NGOs.

Continuing professionalisation in financial services is central to bridging this gap, as is raising consumer awareness of the NZ reforms to financial advice and what they mean in practice. 


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