The Ministry of Business, Innovation and Employment (MBIE) has backed the ongoing use of product commissions under the just-revised Financial Services Legislation Amendment Bill (FSLAB).
Among a more than 100-page document detailing its responses to submissions on the draft FSLAB, the government department knocks back a call to outlaw commissions.
“A ban on commissions and other conflicted remuneration would reduce access to financial advice for individuals who are unable, or unwilling, to pay for it,” the MBIE document says. “…It is intended that the disclosure regulations will improve transparency of conflicts of interest, including commissions and other conflicted remuneration, giving consumers the information that they need to make informed financial decisions.”
MBIE also disputes a claim by legal firm MinterEllisonRuddWatts that the law as drafted would create a “de facto” ban on commissions.
The document reveals MBIE made over 40 – mainly minor – recommended changes to the draft FSLAB following the written and oral select committee submission process.
MBIE says 72 FSLAB submissions included input from 28 financial services providers, 17 industry bodies, eight law firms, seven members of the public, six individual financial advisers, five consumer or dispute resolution firms, and the Code Working Group (CWG).
Angus Dale-Jones, CWG chair, said the FSLAB changes, while relatively minor, would require the committee to rethink its approach.
For instance, Dale-Jones said the requirement for advisers to put act in the best interest of clients was now embedded in the law rather than delegated to the code.
As well as clarifying the best interest duty in law, the FSLAB amendments include: new definitions of financial advice (for example, bringing KiwiSaver investment switches explicitly under the regime); specifying “limited discretion” of ‘nominated representatives’; easing breach-reporting standards for dispute resolution providers; and, simplifying transitional licensing processes for incumbent advisers and firms.
Importantly, too, the edited FSLAB confirms all advisers caught under the law would be subject to the, in-production, code of conduct rather than only to those providing financial advice services.
“We’re happy with that change,” Dale-Jones. “It’s clear now that the law applies to all persons caught under the legislation.”
High-profile financial adviser, Murray Weatherston, also said the move away from a ‘service code’ model was pleasing.
However, Weatherston said the entity-licensing structure of FSLAB could still complicate the code.
“It looks like there will be two codes within the code,” he said. “One for humans, and one for entities.”
Overall, Weatherston said the FSLAB changes were minor – as expected – and didn’t address most of the industry concerns.
“For instance, salespeople can still call themselves advisers,” he said.
Dale-Jones said the CWG, which had already drafted a number of the code standards, was now “digesting” the revised FSLAB published by the select committee last week.
“We have to think about how the [FSLAB] changes flow through to the code,” he said.
Dale-Jones said the CWG would also have to liaise with the Financial Markets Authority (FMA) – which will control adviser licensing under FSLAB – as it completes the code.
Given the FSLAB revisions and multiple consultations ahead – including a minimum six-week period for feedback on the wording of the draft code – he was reluctant to set a hard deadline for the process.
“It could be before Christmas or it might be just after,” Dale-Jones said.
The code sets the clock ticking for FSLAB implementation, which goes live nine months after the government formally approves the CWG document.