Significant upheaval is on its way for the financial advice sector, and advisers aren’t being given enough time to prepare for it.
by Susan Edmunds, Good Returns, New Zealand.
That’s according to AMP, which made one of 73 written submissions to the select committee considering the Financial Services Legislation Amendment Bill.
The code of conduct that will apply to all advisers under the new laws will not be released until later in the year and AMP said that would not leave sufficient space for advice providers to adapt to what was required before the new regime came into force in 2019.
“We consider that a longer period ... is necessary to allow individuals and entities to thoughtfully determine how to adjust their business models to the new regime."
There would be concerns for some advisers’ contracts, it said.
Some financial advice firms and product providers will have existing contracts with non-employed financial advisers that include provisions related to the provision of financial advice, and potentially liability for that advice.
Whilst these were generally workable in the FAA regime, they may not be in the new one. Firms will need to decide whether they want to 'engage' these advisers for the purposes of the new legislation (and take on the obligations and liability associated with doing so), and if so whether those advisers should be financial advisers or nominated representatives. It is difficult to fully understand the implications of this decision prior to finalisation of the code.
Some submissions questioned the proposal to allow for grandfathering for existing financial advisers to meet the requirements.
A two-year safe harbour is proposed from 2019 for existing industry participants who do not meet competency requirements set out in the code of conduct – likely to be level five for product advice and at least a degree for financial planning.
The code working group has also said existing AFAs will be deemed to have satisfied qualification criteria. AMP said it questioned the impact on customers.
“If the view is that consumers require advice delivery from a person who has attained a minimum level of skill then it is incongruous to allow a (potentially very large) cohort to not have attained that skill but be allowed to advise clients.”
The Boutique Advisers Alliance agreed, saying it would lead to an inferior outcome for clients. “The bar to receive a license needs to be set and it is the responsibility of the adviser to ensure the necessary level of operational compliance knowledge exists in their business.”
The FSC said more details were needed quickly on the code and the regulations that would cover things such as disclosure.
“There is a risk for consumers that the industry may choose to defer decisions such as launching new products and making price changes, which may have the unintended consequence of reducing consumer choice and competition.
“Some of our members have complicated business models which, although they superficially may seem simple to transition, are significantly challenged by changes in the bill. For example, QFEs today may have nominated representatives who are AFAs (and sometimes not directly employed).
"The bill removes this construct requiring an exclusive role. Addressing this and other changes is not a trivial exercise and for that reason more time to apply for a transitional licence should be provided.”
Several submitters questioned whether switching within a product, such as KiwiSaver, should be considered advice.
Insurers made submissions, too.
Naomi Ballantyne, of Partners Life, said a duty should be inserted that would require advisers to give advice on a client’s existing product, if they were replacing it, and that providers of advice should be required to ensure ongoing financial advice was given to client.
She said the client first duty in the bill should be removed. “We submit that a provider of financial advice should always prioritise the client’s interests, not only when there is a conflict of interest.”