Win for financial advisers as CoFI tweaked

Financial advisers have been granted some leniency under the new Financial Markets (Conduct of Institutions) Amendment Bill.

Monday, August 10th 2020, 6:00AM

The bill introduces new conduct obligations for financial service providers.

It requires financial institutions to be licensed in respect of their conduct towards consumers, to treat consumers fairly, to establish a fair conduct programme throughout the business and ensure it is complied with and to ensure all those involved in the chain of distribution comply with regulations that prohibit sales incentives based on volume or value targets, like soft commissions such as overseas trips, bonuses for selling a certain number of financial products, leader boards, and performance management based on volume of sales.

There had been concerns that financial advisers would be captured by product providers’ fair conduct programmes, which would have meant they were bound by their own code of conduct, their own financial advice provider’s systems – and potentially multiple product providers’ fair conduct programmes as well.

But the bill has been amended during the select committee process to concentrate on the conduct of financial institutions.

“We are pleased to see financial advisers have been removed from the duties of the bill which means they do not have to abide by the Fair Conduct Programme as they have their own conduct regime. However, they have been included via s446M in that financial institutions have to consider training and supervision for financial advisers, as intermediaries. This is an area we will be seeking further consideration,” said Financial Advice New Zealand chief executive Katrina Shanks.

She said, depending on how much product training an adviser ended up having to take, and what supervision was involved, it could result in advisers offering less provider choice.

“The focus of Financial Advice NZ’s submission was to exclude financial advisers and financial advice providers from the Fair Conduct Programme in the first instance. Financial advisers’ conduct is already regulated under the Financial Services Legislation Amendment Act, which comes into effect in March 2021. We are pleased to see this recognised, and for this amended bill to concentrate on the conduct of financial institutions.

“We are also pleased to see the commencement of the bill has been extended for another year, the definition of fairness has been given more detail, and the claims process has been explicitly removed from the bill.

“We had been concerned that the bill contained wide reaching powers to regulate remuneration for advisers and while we would have liked to see these removed from the bill, we acknowledge the amended bill has now been strengthened to ensure there are safeguards around this.”

Tags: CoFI conduct Financial Advice New Zealand