Commerce Minister Faafoi to keep eye on smaller financial advisers
Commerce and Consumer Affairs Minister Kris Faafoi doesn't want to strangle the small end of town with too much regulation in the latest overhaul of legislation governing financial advisers.
Members of Parliament sent the Financial Services Legislation Amendment Bill to the economic development, science and innovation select committee yesterday, which will review the planned changes to law requiring investment advisers to put the interests of their clients first and ditch clunky designations that have confused consumers.
Under the current regime, authorised financial advisers have to meet certain education and ethical standards to sell more complicated products, whereas registered financial advisers need only to sign up to register to sell simpler services, while staff at qualifying financial entities, such as banks and fund managers, are covered by their employers.
The AFA, RFA and QFE adviser designations will be replaced by two tiers: advisers, who are individually accountable for meeting their obligations; and agents whose employers are accountable. All advice will have to meet standards set by a code of conduct, which means they'll have to put their clients' interests first and disclose whether they get paid for selling a particular product.
In his speech on the bill's first reading, Faafoi said the legislation, which was drafted under the previous administration after a 15-month review, will mean everyone providing advice will be actively monitored as a consequence of the new licensing regime at a firm level.
"I have heard that there are some concerns from the industry about this bill, particularly from smaller operators in the market. These will no doubt be discussed at select committee," Faafoi said. "We want to ensure that the legislation seeks the right balance between ensuring that consumers can access financial advice they need without imposing any undue compliance costs, particularly on those smaller businesses providing financial advice."
Labour MP Michael Wood, who's an undersecretary for ethnic affairs, told Parliament there has been a blurring between sales and service with "some pretty disturbing stories about big financial institutions incentivising RFAs at the moment to sell products to people" which wasn't in the best interests of the clients.
He said he wants the committee to make sure "we're not just having a regulatory framework which is good for the big end of town, the big banks that have huge numbers, but actually also allows for a thriving network of independent, smaller investment advisers who can give very good quality advice to clients."
National MP Chris Finlayson noted the minister's concern about the undue compliance costs facing smaller operators, but said he would "err on the side of greater regulation than less regulation, because of what I have heard around this town and the Lower North Island generally about the Ross Asset Management scandal."
"There was a man who stole millions and millions and millions of dollars - utterly wrecked their lives," he said.
MPs also canvassed the prospect of the legislation enabling digital personalised financial advice, known as robo-advice, and something the Financial Markets Authority is already working on an exemption for while the bill weans its way through the House. Former Commerce Minister Paul Goldsmith was an advocate of advancing robo-advice to help address cost barriers for some people to access financial advice.
Green Party MP Gareth Hughes said the changes enabling robo-advice will be "quite important", and will have to address the issue of liability if a consumer gets bad advice from automated software.
"Who's the responsible party that can be held liable if bad advice is given? Is it the code writer; is it the people who have been monitoring and updating the algorithm; is the agency that owns the algorithm - huge questions, which we're looking forward to exploring in the select committee," Hughes said.
Labour's Wood said enabling robo-advice appeared to be "very much worthwhile" but that it would need "careful examination of at the select committee stage, because, again, we are dealing with people's life savings."