FSLAB: Still changes to be made, associations argue
Financial adviser associations say there’s a risk the Financial Services Legislation Amendment Bill is a step back for professionalisation of the industry.
Monday, February 26th 2018, 6:00AM 
4 Comments
by Susan Edmunds
Submissions to the Economic Development, Science and Innovation select committee, which is considering the bill, closed on Friday.
The Financial Advisers Act review process afforded stakeholders many opportunities to engage with those crafting FSLAB, which MBIE had indicated might expedite the passage of the new law.
But those with concerns were still encouraged to submit – and among them were Financial Advice NZ, the Stakeholders Engagement Group, which is made up of adviser bodies, and SiFA.
Their submissions had common themes: Concerns about the delineation of sales versus advice, the exemptions that allow financial advice to be given outside the regime, and a worry that the new “level playing field” for all advisers could mean the existing regime for AFAs is dumbed down.
“We are concerned that the progress made in lifting professional standards when regulation was originally introduced (via the AFA model) could be undone by lowering standards across the board in an effort to level the playing field,” Financial Advice NZ said in its submission.
“We see a likely ‘de-professionalising’ of the industry in the reference to a level playing field, which could mean we end up with the standard being set at the lowest common denominator which in this case would be nominated representatives.”
It also argued the demarcation of sales versus advice, a key point of discussion through the review, had not been adequately reflected.
Anyone offering advice under the new regime will be a financial adviser or a nominated representative. Both designations will have to work for a financial advice provider.
The Stakeholders Engagement Group, which includes IFA, PAA, NZFAA, The Association, SiFA and IBANZ, said nominated representatives would often just be salespeople.
“Our view is that a sale occurs when a person solely offers a product or products manufactured by their employer with no alternatives considered. In the interests of consumer clarity and understanding, such a person should be referred to as a 'product sales' person.
"A salesperson is not providing advice. Clients mistakenly believe that salespeople are advising them.”
SiFA agreed: “We have said it before and we repeat it again here today, the vertically integrated organisations have completely captured the officials and the regulators; the officials have put before you the select committee in this bill almost everything the VIOs could have dreamed for. The VIOs did not want a separation of sales and advice, because of the likely detrimental effect on their businesses – and they have been simply handed what they wanted.”
Financial Advice NZ said consumers would understand the designation no better than they did the RFA/AFA system.
The groups argued that the exemption for lawyers and accountants should not be allowed to continue in its current form.
SiFA took issue with the exemption for journalists, too, saying that some were drifting into writing personal advice columns. They should not be able to offer the advice themselves, the group argued.
Financial Advice NZ said the entity licensing model could cause problems.
“In the current environment, a large number of advisers - both AFAs and RFAs – operate in sole practice or in small firms. They are currently operating efficiently but are concerned by the uncertainty around the new regime and its impact on, and costs for, them.
“A move to a regime in which advisers operating in large firms are effectively (because of capability and cost constraints) preferred over small operators is sub-optimal. It will, in our view, result in a significant number of existing advisers leaving the profession and so negatively impact on the Review’s objective of providing the public with access to the advice and assistance they need.”
SiFA said advisers had spent more than $100 million complying with the previous model. Now they would have to start again.
Financial Advice NZ pointed out that the industry was still waiting for information from the Financial Markets Authority on what licensing would look like, from MBIE for disclosure details and the Code Working Group for competency information
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Comments from our readers
Three fundamental flaws
1. No distinction between sales and advice
2. De-professionalisation of advisers
3. Unwarranted exemptions for lawyers and accountants, advice-dispensing journalists and direct investment property
Specific drafting issues
4.No casting vote Code Committee chair
5 Code Committee prohibited from adding new adviser duties into the Code
6. Redraft the relevant section so it is clear the Code is for any person who provides financial advice (more like an occupational code for humans and perhaps a separate code for robo-advice)) rather than the service Code CWG think the existing wording requires.
7. Make clear whether a “financial adviser” can provide advice on behalf of more than one financial advice provider or not
8 Expand definition of financial advice to include a personal insurance planning service, a mortgage planning service, a general insurance planning service etc and not just an investment planning service
9 Clarify the boundary as to how much discretion a “nominated representative” can have before they can no longer be a nominated representative and would have to be a “financial adviser.”
Murray Weatherston
SIFA Chair
Well done Murray & SiFA - we just hope the Select Committee is more receptive than the bureaucrats.
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right on the money
well done everyone