
The Financial Markets Authority (FMA) has slated adviser “remuneration models” for close attention ahead of a regulatory review of the sector.
FMA chief, Samantha Barrass, told Financial Advice NZ (FANZ) conference delegates last week that the regulator would target adviser remuneration practices as it seeks to focus resources on high-risk businesses.
The regulator has come under budgetary pressure as the government looks to slash public sector costs, confirming a number of job cuts were underway last month.
“Our ongoing monitoring and supervision of the sector has identified that some key drivers of certain behaviours and poor conduct are closely linked to these business and remuneration models,” Barrass told the FANZ conference. “By looking under the bonnet of these structures, we will be able to better understand where to focus our regulatory efforts, and have more deep and meaningful compliance conversations with advisers. It will also inform our review of access to advice.”
She said the planned ‘access to advice’ review, which comes two years after the full implementation of the financial advisory licencing regime, would hit four key points: consumer preferences and demographics; business models and market trends; digital advice/innovation; and, “ease of provision of financial advice”.
The review would determine whether the FMA needs to tackle any “unnecessary regulatory burden” preventing access to advice, Barrass said.
But the remuneration probe could see the regulator lean more heavily on certain adviser businesses.
“While we are in the early stages of scoping this second review, we anticipate being able to reduce the regulatory burden on providers with lower risk models as we look to focus on those with greater risks,” she said.
FANZ chief, Nick Hakes, said the industry body had partnered with the FMA on the scope of the access to advice review.
“We note the focus on industry business models, consumer preferences, innovation and the ease of provision of financial advice,” Hakes said in a release. “We look forward to further constructive dialogue with the FMA as they progress with the review.”
Consultation on the ‘access to advice’ review closes on May 30.
At the same time, the FMA has released an inaugural report on the licensed advisory sector.
The in-depth analysis of some 1,410 financial advice providers (FAPs) – based on year-one ‘regulatory returns’ – found the majority of firms focused on insurance.
“… life insurance contracts and health insurance contracts are the most common types of products for which financial advice was provided, with both categories having significantly higher numbers compared to others,” the report notes.
Managed investments represented the third most popular FAP-advised product type, although only about 460 firms reported activity in this sector compared to about 800 each in health and life insurance.
Nonetheless, only 12 per cent of FAPs claimed to have zero funds under advice while close to 30 per cent oversaw $50 million or more, according to the FMA study.
The regulatory data also shows the sector generated almost 43,600 complaints last year with only 514 “escalated” to external dispute bodies: more than half (284) of the referred complaints related to insurance premium increases.
As at the end of last year, the FMA counted 56 ‘class 3’ FAPs – those able to employ ‘nominated representatives’ and 406 sole-trader ‘class 1’ firms.
The majority (948) of FAPs fall into the ‘class 2’ mould that allows firms to include multiple ‘financial advisers’ under their licence.
Also last week, the FMA published its first take on the Conduct of Financial Institution (COFI) regime after scanning the ‘fair conduct programmes’, or FCPs, of 38 licensees (out of a total of about 80) as an early test.
The FCP is a cornerstone compliance document in the COFI legal architecture, requiring licensees to outline how they plan to treat customers.
Michael Hewes, FMA director deposit taking, insurance and advice, said in a release: “Encouragingly, we saw that many financial institutions have taken a comprehensive approach to the development of their FCPs, ensuring they align with their business nature, size, complexity and risk profile.
“Some have gone beyond the minimum requirements to build comprehensive, consumer-focused practices.”
COFI only came into force at the end of March but will be updated later this year, Finance Minister Nicola Willis, confirmed in a FANZ session.
Willis said in-draft legislation would include a provision for institutions to consolidate multiple FMA licenses into one,
She said the government was also toying with ideas to boost contributions into KiwiSaver that would likely be included in the May budget.