NZ could see regulatory spillover following damning revelations emerging across the Tasman from the Royal Commission investigating financial services.
In a statement last week, the Financial Markets Authority (FMA) said: “We are in close contact with ASIC and are monitoring developments at the Royal Commission (RC) closely. We are engaging with all the businesses involved to discuss the implications for their New Zealand operations.”
The RC revelations may also hit the Financial Services Legislation Amendment Bill – currently at Select Committee phase – that replicates the Australian financial advice system of licensing corporate entities rather than individual advisers.
Last Friday the Australian government announced harsher criminal and civil penalties for contravention of the Corporations Act (comparable to the Financial Markets Conduct legislation in NZ) after the RC exposed a number of negligent institutional financial advice practices.
Notably, AMP group executive for advice and NZ, Jack Regan, admitted to the RC that the group had misled the Australian Securities and Investments Commission (ASIC) on at least 20 occasions as it sought to protect fee revenue banned under the 2013 Future of Financial Advice (FOFA) law.
AMP chief, Craig Meller – whose name, the RC revealed, was removed on AMP board request from an alleged independent report into the matter by legal firm Clayton Utz – resigned last week eight months ahead of schedule.
However, a range of other Australian financial heavyweights – including Westpac, the Commonwealth Bank of Australia (CBA) and ANZ – also copped flak from the RC, mostly for collecting ‘fees for no service’ from thousands of advice clients.
Under the vagaries of the Australian financial advisory, superannuation and investment management systems, clients can end up paying advice fees and/or commissions without receiving any particular service from the relevant providers.
As well as banning commissions on investment products (and other ‘conflicted remuneration’), FOFA sought to phase-out the prevalence of so-called ‘orphan clients’ by requiring advice firms to collect opt-in fee agreements every two years.
However, any existing fee/commission agreements could remain in place under generous ‘grandfathering’ arrangements. Regan told the RC grandfathered fees still accounted for about 70 per cent of AMP’s advice revenue.
He said AMP paid ongoing “fees and commissions to advisers [of] approximately $600 million” in 2015 across the group’s 2,800 or so advisory force.
Regan returned to Australia as AMP group executive advice and NZ in January in 2017 after a 10-year stint heading the business in NZ. Prior to taking on the AMP NZ role in 2007 he ran the AMP-owned financial advice ‘dealer group’ Hillross during the pre-FOFA heydays.
According to the 2017 AMP annual report, Regan earned just under $2 million in total remuneration.
A spokesperson for AMP NZ said: “In New Zealand, we operate within a different regulatory and governance framework, with different operating and distribution models [compared to Australia].
“We continue to maintain an open and transparent relationship with New Zealand regulators – the FMA and RBNZ.”
The NZ financial services landscape is much simpler than the byzantine Australian structure which features intertwined layers of superannuation, investment platform and multiple institutional advice brands.
However, AMP NZ does have a third-party advisory group – the roughly 60-strong AdviceFirst group (which incorporated Spicers last year) – and an investment platform, WealthView, that shares the same name as its Australian counterpart.
Unlike their Australian parents most NZ banks have eschewed creating or buying off-brand financial advice businesses, preferring to channel clients through in-house advisers. The massive Australian superannuation regime – now in excess of A$2 trillion – also supports the financial advice industry there via a range of ongoing fee options.
Conversely, the almost $50 billion KiwiSaver regime is virtually advice-free following moves at the outset to limit adviser fees explicitly-linked to member accounts.
NZ’s investment platform business is also remarkably straightforward – at least by Australian standards. Just two technological systems – FNZ and the ASB-owned Aegis – dominate the platform business (albeit with the NZX Wealth Technologies looking to muscle in on the action) with administration fees relatively constrained.
Clients in NZ can also switch platforms far easier than across the Tasman where a complex web of tax rules, institutional opaqueness and commercial interests can leave investors stranded on high-fee administrative systems.
For now, the Australian bank-owned and AMP advice businesses are under heavy fire (following an earlier assault by ASIC on non-institutional advisory firms that ultimately saw several – including the, at one point, largest advice firm Professional Investment Services – disappear).
The shelling continues this week with the RC due to wind up the financial advice probe this Friday.
Meanwhile, AMP is gearing up for its AGM next months where other changes, including a mooted sale of the NZ business, will be on the agenda.
“We hope to provide an update [about the status of the AMP NZ business] at or before the AGM on 10 May,” a spokesperson for the group said.