Fewer clients will be classified as ‘wholesale investors’ under the post-consultation Financial Services Legislation Bill (FSL) shipped off to Parliament last month.
James Hartley, Ministry of Business, Innovation and Employment (MBIE) manager financial markets policy, said the tightening of the ‘wholesale investor’ definition was one of the major amendments from the draft FSL.
“Most of the attention has been on the change to the Financial Adviser Representative [FAR] designation to ‘nominated representative,” Hartley said. “But the wholesale investor change was possibly the most significant we made following consultation.”
Under the revised FSL, which will replace the current Financial Advisers Act, the ‘wholesale investor’ definition used by advisers will align with the Financial Markets Conduct Act (FMC). (The FSL itself is designed to bring most financial advisory regulations into the FMC regime.)
According to an MBIE review of the post-consultation changes to the FSL the alignment with “the narrower FMC Act definition of ‘wholesale investor’ so it applies to fewer clients”.
Hartley said the original FSL wholesale investor proposals drew heavy fire during the consultation phase leading to a couple of other revisions.
Most importantly, the ‘retail service model’, which required advisers to treat all clients as retail if just one of their clients fell under that description, has been dumped.
“Now advisers can treat all clients on their merits,” he said, with a mix-and-match wholesale/retail client base to be legal under the FSL.
However, MBIE notes that the “Financial Markets Authority’s [FMA] designation power has been amended so that the FMA may declare that clients, who would otherwise be treated as wholesale clients or investors, should be treated as retail”.
Hartley said among a raft of other minor “technical” amendments, the official FSL also clarifies the ‘duty to put the interests of the client first’.
“It’s now called the ‘duty to priortise the interests of clients’,” he said.
Furthermore, the re-edited legislation narrows the draft FSL requirement that advisers should manage conflicts in relation to “any other person… in doing anything in relation to the giving of advice”.
“The duty has been amended to apply if there is a conflict between the interests of the client and the interests of the person giving advice or any associated person (as defined in the Financial Markets Conduct Act 2013),” the MBIE note says. “The wording in doing anything in relation to the giving of advice has been removed.”
Hartley said the FSL, presented to Parliament late last month, should get its first hearing before the end of the year, after the dust has settled from the September 23 election.
He said, all going well, the FSL could be passed by the end of the first quarter of 2018.
In a provisional schedule released by MBIE, the transitional period for the new adviser legislation is set down to begin in November 2018 – three months after the new industry Code of Conduct is due for approval.
“All financial advice providers who give advice to retail clients must have obtained a full licence by the FMA,” by May 2021, the MBIE note says.
In the interim Hartley said MBIE was developing practical FSL policies such as “what adviser disclosure documents may look like”.