Main elements of the new regime for the financial advisers. The rules for advisers and firms are changing - find out how the changes will affect you.
The following information is supplied by MBIE, August 2017. Since MIBE published this information we have updated the transition dates to reflect the timeline supplied by the Code Working Group:
The Financial Services Legislation Amendment Bill creates the new regime for financial advice. A detailed explanation of the new regime, including a clause by clause analysis of the Bill, is outlined in the explanatory note on pages 1-19 of the Bill. The main elements of the new regime are summarised below.
Who can give financial advice
Anyone giving financial advice will need to be engaged by a financial advice providerand, to give advice to retail clients, the provider will need to be licensed by the Financial Markets Authority (FMA). Financial advice providers will be able to give financial advice:
Directly (e.g. online), and/or
Through ‘financial advisers’, and/or
Through ‘nominated representatives’ (who will have less discretion than financial advisers).
Conduct and competence requirements
All those giving financial advice (firms and individuals) will be held to conduct and competence requirements. In particular:
Anyone giving financial advice
Must give priority to the client’s interests
Must disclose certain information to clients. This will be prescribed in regulations and may vary for wholesale and retail clients.
Anyone giving financial advice to retail clients
Must ensure the client understands any limitations on the nature and scope of advice (e.g. how many products or providers have been considered)
Will be subject to a new Code of Conduct that sets standards of competence, knowledge and skill, ethical behaviour and client care
Financial advice providers will be subject to the compliance and enforcement tools in the Financial Markets Conduct Act 2013, such as civil liability, and licensing actions such as censure and the imposition of action plans.
All financial advisers will be subject to the existing Financial Advisers Disciplinary Committee and will face disciplinary consequences if found to have contravened a duty.
Improving access to advice
Regulatory boundaries have been removed to make it easier for those giving advice to respond to their clients’ needs and wants (e.g. the definitions of ‘class’ and ‘personalised’ financial advice).
The requirement for personalised financial advice to be given by a natural person has been removed. Technology-neutral legislation will further enable the provision of robo (or digital) advice and help future-proof the regime.
Transitioning to the new regime for financial advice
The below provides more detail on the transitional arrangements in the Bill.
The dates below are indicative only. Exact dates will be determined once the Bill is passed and the Code of Conduct is approved.
Bill passed but not yet in force.
New Code of Conduct approved by the Minister of Commerce and Consumer Affairs.
Approximately 3 months after the Code is approved and published
Transitional licensing opens for existing industry participants (approximately three months after the Code of Conduct is approved). Industry participants will have approximately six months to apply for a transitional licence.
Approximately 9 months after the Code is approved and published
New financial advice regime, including Code of Conduct, comes into effect (approximately nine months after the Code of Conduct is approved).
All new legislative obligations and enforcement mechanisms apply.
Transitional licences come into effect. To continue to provide advice, industry participants must have been granted a transitional licence by the FMA.
Terms such as AFA, RFA and QFE are no longer used.
A competency safe harbour is in place for existing industry participants who do not meet the competency requirements set out in the Code of Conduct. Under the safe harbour, existing industry participants can continue to provide advice while working to meet any new competence standards. The advice they can provide is restricted to the advice they were legally able to provide prior to the new regime coming into effect.
Transitionally licensed financial advice providers have up to two years to apply for and be granted, a full licence from the FMA.
Approximately 2 years after the Code is approved and published
All financial advice providers who give advice to retail clients must have obtained a full licence by the FMA.
Any remaining transitional licences expire. Advice can no longer be provided under a transitional licence.
Competency safe harbour ceases. All industry participants must meet the competency requirements in the code of conduct to be able to provide financial advice.
Over the next 18 months, the FMA will work with the industry in order to help participants understand and get ready for the new financial advice regime and licensing.
If you are uncertain about what the upcoming changes might mean for you or your business, contact us for advice about what you can do now to prepare for the new regime.
Disclaimer: This article is general in nature. It is written to assist advisers who are AFAs and RFAs in small businesses to determine if they are likely to be a “reporting entity” and have obligations under the AML/CFT Act. This article is not legal advice, and should not be relied upon as such. This article is not a comprehensive guide covering all situations an individual or an entity may be engaged in to determine if they are a reporting entity. The directors and staff of Boutique Advisers Alliance are not responsible for any error in or omission from this article.