The government will likely miss the pre-election deadline for introducing the revised financial adviser legislation, according to Kensington Swan partner, David Ireland.
Ireland, who doubles as chair of the current Code Committee for Financial Advisers, said the Ministry of Business, Innovation and Employment (MBIE) had set an “ambitious timeframe” for bringing the Financial Services Legislation (FSL) before Parliament retires this year prior to the September 23 election.
“They will struggle to get the bill into parliament before Parliament rises,” he said. “It’s more likely they won’t make it in that time – there’s still quite a lot of work to do.”
However, Ireland said any delay in introducing the bill – which essentially devolves legislative oversight of the advisory industry to the Financial Markets Conduct Act (FMC) – should not ultimately slow down the regime change timetable.
“The Code Working Group (CWG) can get work underway, which will take some urgency out of the need to introduce the law,” he said. “And even if there is a change of government [post September 23], all parties are aligned on the proposals – there’s no political mileage to be made in opposing it.”
Under the MBIE plans, published in the FSL exposure draft late in February, the CWG is scheduled to start preparing a new Code of Conduct “in early-mid 2017” before the legislation is inked.
According to an MBIE factsheet, the government “will seek expressions of interest for the Code Working Group around March 2017”.
“We note that this is a new group, rather than a continuation of the current Code Committee (who currently produces the Code of Conduct for Authorised Financial Advisers) recognising the wider scope of the new Code of Conduct,” the factsheet says. “However, members of the current Code Committee may apply for the Code Working Group.”
Ireland said he would probably throw his hat in the ring “but I expect the majority [of CWG members] would be those not on the current committee”.
Institute of Financial Advisers (IFA) chief, Fred Dodds, said the CWG would have to include more representatives from the life and mortgage-broking industries – two groups that would be more tightly-regulated under the proposed regime.
Dodds said the MBIE plan to have the new code in place by next August was optimistic “but do-able” with broad industry co-operation on the task ahead.
Like Ireland, he doubted the FSL would enter Parliament before September 23 – but was also reasonably confident that bi-partisan political support would see the law introduced regardless of the election outcome.
In general, Dodds said, the IFA – currently in talks with the Professional Advisers Association to create a new industry-wide body dubbed Financial Advice NZ – supported the FSL.
However, he said there were a few areas of concern – such as how the client-first requirement would work across different industry groups and the revised nomenclature that saw financial advice representative (FAR) replacing the original proposal of ‘agent’ to describe those dealing only in house products.
While the IFA also opposed the ‘agent’ designation – favouring instead something like financial provider representative – Dodds said the FAR label could easily be confused with the financial adviser (FA) tag.
In a statement issued last week, Financial Advice NZ said a FAR “in most cases will not be providing a comprehensive advice experience, and will not be individually accountable for their advice”.
“But with the word ‘advice’ in their title, how is a member of the public to know the potential limitations of the FAR service?,” the statement says. “How will they be able to differentiate between this and the comprehensive advice service of a Financial Adviser (FA)?”
But the FAR/FA debate could be missing the point, Ireland said. He said under the proposed regime the FMA would tightly regulate those entities that were FAR-heavy to ensure they had correct processes in place.
In fact, Ireland said the proposals offered diverse advisory firms the flexibility to decide how they wanted to structure themselves – as well as the responsibility to justify their advice models to the regulator.
Nonetheless, he said while the CWG will start the donkey-work, the industry has much to consider in the exposure draft – along with a handy accompanying explanatory guide.
“It’s a smaller task than the FMC but it will be a painful effort, regardless,” Ireland said. “Law is never an easy read – but should we pretend otherwise?”
The MBIE timeline shows transitional licensing beginning in February 2019 with the regime to take begin proper two years later.