Almost exactly a year after introduction the Financial Services Legislation Amendment Bill (FSLAB) could be up for its second reading in parliament in a fortnight after clearing the select committee phase last week.
It is understood the Economic Development, Science and Innovation Committee would table a slightly revised FSLAB this week before the government pushes the draft law through the final legislative process.
According to industry sources, the draft legislation should be in parliament for a second reading in a couple of weeks putting the bill on more-or-less on track with the original deadline.
The 2017 FSLAB draft consultation document initial timeline shows both the legislation – and the accompanying adviser Code of Conduct – in place by August this year. Under those projections, all financial advisory business caught by the law would have from August this year until next February to apply for a ‘transitional licence’ while applications for full licensing would begin later in 2019.
If the original FSLAB implementation program stays on schedule, by February 2021 all advisory firms would require a full licence to operate as the transitional permits expire.
While there may be some wriggle-room around those deadlines the government is moving fast to introduce FSLAB, which dramatically overhauls the current financial adviser regulatory regime.
FSLAB, which corrals financial advisory rules under the Financial Markets Conduct Act (FMC), will bring about 30,000 individual advisers into a licensing regime designed to lift education and disclosure levels while yoking the entire industry to a common Code of Conduct – compared to the 1,800 or so authorised financial advisers (AFAs) currently subject to codified standards.
Importantly, FSLAB will shift the regime from the existing mix of individual licensing and registration – AFAs and registered financial advisers (RFAs) – and corporate licences (qualifying financial entities – or QFEs) to a broad entity-licensing system.
According to the Financial Markets Authority, as well as the 1,800 AFAs the NZ advice industry includes: 7,000 RFAs; and, 20,000 advisers housed under the auspices of 53 QFEs.
In a statement earlier this year, Commerce Minister Kris Faafoi, said: “Under [FSLAB], all financial advice to everyday clients will have to meet standards of conduct and competency. This is really important because we know that small changes to investments or savings can ultimately make a big difference, for example to funds saved for retirement.
“This really affects people’s ultimate quality of life – so we do want to ensure the advice is as good as it can be to enable the best outcomes.”
Meanwhile, FSLAB’s companion piece – the Code of Conduct – is also moving closer to sign-off. The Code Working Group (CWG) recently published some of the 160 submissions received on its draft code consultation.
Interestingly, only a handful of investment management-focused firms offered feedback on the draft code including Milford Asset Management, Select Wealth, Craigs Investment Partners, Forsyth Barr and Booster.
While mostly supportive of the draft code, share-broking businesses, Craigs and Forsyth Barr, both expressed concern that advisers managing discretionary investment management services would be forced to over-disclose.
“Our advisers provide clients with advice on their situation and goals, and manage the client’s underlying investment portfolio,” the Craigs submission says. “The Code should ensure an ongoing client relationship and service does not trigger a full re-documentation of the advice process when the advice provided could be a small re-balancing change to an underlying portfolio of assets.”
Milford, likewise, mainly endorsed the draft code with one or two caveats, including a suggestion that: “Where a commission or revenue share is paid to the adviser, the dollar value must be disclosed together with whether it is an ongoing or one-off payment.”
The FSLAB select committee report should be tabled this Tuesday.