New financial advice regime doesn’t go far enough, Consumer says

A consumer group says a new regime for financial advisers designed to put their client’s interests first doesn’t go far enough and its success will be highly dependent on how well it is regulated.

From yesterday

all financial advisers will have to come under a licensed provider and sign up to a code of professional conduct.

That will mean advisers have to disclose any conflicts of interest, commissions they are paid and limits on the companies or products they advise on.

Up until now advisers had been split into different groups which varying requirements and only a smaller subset of around 2000 advisers had been specifically required to put the interests of their clients first.

The new regime will capture around 22,000 advisers – about 10,000 investment advisers, mortgage and insurance brokers and a further 12,000 advisers who work for banks and insurance companies.

It also brings online or robo-advice under the same regime, meaning companies no longer have to apply for an exemption to provide this service.

David Clark, minister for commerce and consumer affairs, said financial advice played an important role in helping New Zealanders achieve significant milestones in their life such as saving for a first home or planning for retirement.

“The new regime will give consumers greater confidence to seek advice that will help with their financial goals, providing them with greater trust in the quality of that advice.”

But Jessica Wilson, head of research at Consumer New Zealand, said: “We made a submission on the reform. We did have concerns that the reform didn’t quite go far enough and a big issue is how they are going to be monitored.

“There is a lot of motherhood and apple pie stuff. But really it comes down to how good the monitoring enforcement processes are to see what actually happens.

“That may require regulators to consider things such as mystery shopping because to actually find out what advice consumers are being given you have to be in the room. You have to have some good monitoring systems that are going to pick up when a consumer isn’t being given the quality of advice that they should be.”

She said lack of scrutiny of the financial advice sector had been a big problem and previous efforts to raise standards in the industry hadn’t delivered expected results.

“Other changes are still needed to improve consumer protection, including better disclosure of complaints by the disputes bodies to which financial advisers must belong.”

The licensing and enforcement regime falls under the Financial Markets Authority which last year was allocated extra funding over the next three years to help it with the workload created by the new regime.

In the past advisers were either individually licensed or registered but now they will have to affiliate to a licensed financial advice provider.

Individual advisers have the next 90 days to confirm on the Financial Service Providers Register which licensed provider they come under.

An FMA spokesman said it would be able to take enforcement action against both the individual adviser and the licensed provider if they were found to be breaching the law, with enforcement ranging from license suspension to putting conditions on it.

Katrina Shanks, chief executive of Financial Advice New Zealand, said the change meant there had been a raising of the benchmark so all advisers had the same competencies.

“What this will do is reinforce to the public that advice can be trusted. We believe with these other levers being pulled through the legislation and regulation that will boost public confidence and trust in seeking advice and more New Zealanders will seek advice.”

Some have previously raised concerns that increasing the bar for advisers will reduce the number, making it harder to get access to advice.

Shanks said she was hopeful that with financial advice now being recognised as a profession it would attract more people to it.

“We are hoping it will attract more people into the career and will see more pathways coming out of university which we haven’t previously seen a lot of.”

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