New guidelines for being prepared for advisers under CoFI
FMA CoFI guidelines suggest large financial institutions will be required to keep an eye on advisers who do work for them under contract.
Friday, December 2nd 2022, 6:00AM 
4 Comments
by Eric Frykberg
The Financial Markets Authority (FMA) says it will provide more information in the New Year about how advisers will be affected by tough new rules on financial conduct.
In the meantime, it is making clear that advisers will not remain untouched by the new Financial Markets (Conduct of Institutions) Amendment Act (CoFI), which was passed last year.
That is despite the fact that the CoFI law is not explicitly aimed at advisers.
It instead tells banks, insurance companies and non-bank deposit takers (NBTAs) that they will have to acquire a Financial Institution licence to keep on operating from early 2025.
Applications for such a licence will be considered by the FMA from July 25 next year.
Financial Institutions will also be required to develop a Fair Conduct Programme (FCP).
This will require them to pay due regard to consumers’ interests, to act ethically, transparently, and in good faith.
It will also require financial institutions to assist consumers to make informed decisions, to make sure appropriate financial products are available and to avoid using high pressure tactics on customers.
CoFI was passed after FMA and the Reserve Bank found a regulatory blindspot regarding financial institutions, although opponents said this was not causing any problems.
But the Act was passed and is being implemented gradually.
A swathe of documents were released this week which pushed that process forward.
One of them made clear that under the new law, large financial institutions will keep an eye on advisers who do work for them under contract, even though advisers are not the law's main target.
“The CoFI Act requires a financial institution to have regard to ….... the types of intermediaries that are involved in the provision of its relevant services and associated products,” one of the FMA documents said.
This clause would cover “ the nature of that involvement and their legal obligations in connection with their involvement (such as obligations related to giving financial advice).”
Under this principle, an FCP would cover a variety of channels used to deliver financial services, including intermediaries such as advisers. It goes on to say a FCP should cover a number of ”interlinking” processes.
This appears to bring advisers into a state of partial cover by the CoFI law.
But in many cases, advisers are the first port of call, and even the major contact point, for a person who ends up borrowing from a large bank. As a result that bank could end up being judged by the public according to the behaviour of an adviser.
An early version of the CoFI legislation wanted to resolve this problem by proposing intensive supervision and even training of advisers to be done by financial institutions.
This was pared back in the bill that finally passed through Parliament.
But the final version makes clear that advisers will still have to meet the codes of conduct that are imposed directly on large financial institutions.
The FMA document due out in the New Year will give more information on how this is to be achieved.
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Comments from our readers
Hey
where's my job description?
where's my KPIs?
where's my contract?
Last I looked, I don't "work for" any insurer "under contract".
I give advice to my clients, which is already under plenty of regulatory observation. That advice may or may not include a recommendation that the client obtain, retain, or dispose of a financial product. And in none of those options do I give a rat's rear end about what the insurer would prefer.
Because I don’t have their logo on my POLO SHIRT.
They will do as I and/or the client instructs (notwithstanding u/w selection).
I have an agreement with some insurers, not all. But that's to do with clients inside my agency, and commissions etc. It has no direct bearing on my role as adviser. Last I checked, I don't actually have to have any agency agreements with any insurers at all in order to have a licence. And I definitely don’t need one to look at a client’s situation and policy documents and give them advice. If I was to work solely for fees, how would any particular provider have any authority or influence over my conduct at all? Where’s the “link”?
I used to think they just ignored us (including our submissions), and had little understanding of what advisers do.
Now I think they are not only ignoring us, and have little understanding of what we do, but also they are being deliberately obtuse about it. It’s almost cruel.
Furthermore: I’m quite sure that situations where the bank is judged by the public according to the actions of an adviser are very rare. Advisers are judged by the public for their actions, and likewise the banks need no help from us with public perception – they manage that for better or worse just fine.
In fact, when it is explained like above, it makes me think either the banks have been a little to successful with their back room ear chewing, or officialdom really really wants us to serve two masters – two codes, two sets of laws and two licence structures.
If anyone here needs a Fair Conduct Programme it’s the idiots who come up with this crap.
Though from where I have sat for the last 22 years, there's a need for CoFI legislation, as there are behaviours and practices with providers that are not client friendly. Many of which I have written about in my columns here and have mostly been ignored (not understanding the harm to clients judging by the comments made).
The latest I picked up on is AIA repricing Level Term contracts when they are being split/changed... Not the guaranteed option this was sold under!
That said; as Dirty Harry has pointed out, and to put a finer point on it; as Financial Advisers, we don't have advice agreements with insurers; we have advice agreements with FAPs.
Those FAPs do not have advice agreements with providers; they have a commercial supply and service contract with providers. These have content on conduct and behaviour; it also outlines the relationship's commercial nature, what is paid to whom under what conditions, and how that is managed.
Much like my article on locum advisers, this legislation in relation to Financial Advisers (not working for a manufacturer of products) demonstrates absolutely no understanding of how the financial advice industry works.
In the same vein, FSLAA isn't prescriptive, and the FMA has stated they won't prescribe what good or bad advice looks like, though they know what lousy advice looks like; regulating advice is like trying to thread a needle with jelly. A pointless waste of time and energy, and likely money too, that can only be measured with the adviser in the context of the client.
For example, I'm not going to provide Partners Life trauma cover to a 20-year-old with a parent with both bowel cancer risks and MND; the terms will exclude MND and ALL cancers. The only one that's possibly worse is Cigna, who will exclude bowel cancer and MND with a large loading. (And there's a lot more to this that I won't include for privacy reasons)
Yet, Asteron Life excludes MND and Fidelity Life excludes bowel cancer.
Now tell me, how many providers will I piss off because I didn't use their contract for this client? And how do you define the rules around this? Given that the client now needs to choose between a bowel cancer exclusion or an MND exclusion?
Not to mention that under the privacy act, I am not allowed to discuss or disclose the client's details or information to a provider that the client has not authorised me to use.
Yup, if AIA comes knocking on my door and asks for my files on this client, the answer is go fish. The client is not with AIA, and nor am I proposing cover there. So I'm not going to justify my advice to anyone.
And the receiving provider will largely not ask more questions because they are receiving the business. Not that this case will be questioned, given the research that has gone into the advice, but it makes a valid point on how ridiculous CoFi's rules look!
Bureaucrats with zero knowledge setting and making up situations that simply don't exist
The photo of the past FMA CEO with his head in his hands said it all. But thanks to that picture I made my exit from the industry after 50 years involvement because the future was obvious
From the comment from "dirty harry" it appears that some are simply going to say "F* Off"
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In evidence given to a parliamentary select committee both the FMA and Reserve Bank were clear that there was no evidence of systemic wrongdoing in New Zealand. They found isolated cases but there was no systemic issue.
As an opposition MP said this law is a solution looking for a problem. It's just another example of overregulation adding unnecessary complexity to an industry which doesn't need it. Inevitably the costs associated with these changes will get passed on to the consumer themselves.