The much-anticipated final government report on proposed changes to the Financial Advisers Act (FAA) should be out by the middle of this month.
In a release, Paul Goldsmith, Commerce Minister, said he expected to publish the Ministry of Business, Information and Employment (MBIE) review the FAA and the related Financial Service Providers Act “in mid-July”.
Goldsmith said the final review would take into account the Financial Markets Authority (FMA) investigation into life insurance ‘churn’, released last week.
He said the FMA report found “a small proportion of advisers where there is a risk of consumer harm and potential churn”.
“This review has been examining the conflict of interest issues raised in the Financial Market Authority’s report as well as other areas such as licensing and disclosure,” Goldsmith said in the release. “The findings of the FMA report will be considered as part of the FAA Review.”
The FMA report identifies a core group of about 200 financial advisers with suspiciously-high life insurance replacement activity. According to the FMA investigation, the 200 advisers between them earned about $110 million annually off about 65,000 active life policies.
The group earned “almost 50% more from commissions on life insurance than other high-volume advisers”, the FMA says.
In a statement, the regulator said the current high front-end commission and soft dollar incentives (such as offshore conferences) rife in the NZ life industry highlighted “conflicts of interests that may harm consumers and could negatively affect the overall price, and therefore accessibility, of life insurance to New Zealanders”.
The FMA findings closely follow earlier reports on the life insurance industry published by actuarial consulting firm, Melville Jessup Weaver, and the NZ Institute of Economic Research.
While the FMA life insurance report may influence the final shape of a revised FAA, the MBIE report due in Cabinet this week is expected to clarify a number of issues including the future of the authorised financial adviser (AFA) designation and the legal status of robo-advice.
The FMA has also been busy working on the provider side of the regulatory ledger with three new entities officially entering the managed investment scheme (MIS) licensing regime last week.
With the addition of Pathfinder Asset Management, the NZX-owned Smartshares, and ASB Group Investments the list of MIS-licensed managers hit 33 – or about a third of the number expected to join the Financial Markets Conduct Act (FMC) licensing regime before the December 1 deadline.
However, only a handful of the MIS managers have yet to proceed to stage two and file scheme documents on the Companies Office ‘Disclose’ website – with Nikko Asset Management the latest to get its papers in order.