Just as the NZ financial advice industry is about to enter a legislative environment similar to the Australian version, the regulator across the Tasman is pondering how to reverse an unfortunate side-effect of its rule-heavy regime.
In a consultation paper published last week, the Australian Securities and Investments Commission (ASIC) is seeking industry feedback on how to make advice great again for the mass market.
After decades of reforms, dating back to the Corporations Law changes enacted in 1999, increasing layers of regulation have both priced average Australians out of the advice market and, more latterly, triggered an exodus of advisers from the industry.
ASIC Consultation Paper 332 ‘Promoting access to affordable advice for consumers’ notes that the Australian “financial advice industry has undergone considerable change in recent years”.
“Many large financial institutions have either sold or reduced their financial advice businesses,” the ASIC paper says. “At the same time, a number of financial advisers have either left, or signalled their intention to leave, the industry.”
According to the Australian regulator, the number of financial advisers as at this November was almost 15 per cent below the long-term average prior to January 2019.
“The reduction in the number of financial advisers has led to widespread concern that consumers may find it difficult to access good-quality affordable personal advice,” the report says.
In particular, ASIC is considering how to ease the way for providers to offer one-off pieces of financial advice without triggering comprehensive, and expensive, compliance procedures.
However, the regulator is at pains to distinguish ‘scaled advice’ from ‘single issue’ or ‘limited’ advice, preferring the latter term.
“We know from previous research that consumers want better access to limited and affordable advice, but that many industry participants find it challenging to provide this type of advice,” the paper says.
The consultation is part of ASIC’s ‘Unmet Advice Needs’ project – an attempt to square the circle of increasing regulation and meeting consumer demand for low-cost, professional financial guidance.
In a release, ASIC commissioner Danielle Press, said: “Good-quality affordable personal advice may help consumers make better financial decisions, especially during times of heightened vulnerability.”
The slightly delayed NZ Financial Services Legislation Amendment Act (FSLAA) is undoubtedly more flexible in allowing for ‘limited advice’ than its Australian counterpart but it will impose extra costs and compliance duties for many.
While FSLAA could see some advisers leave the business, pre-licensing numbers suggest the NZ advisory industry won’t shrink dramatically come March next year. Most recent figures from the Financial Services Providers Register show the number of advice business entities is at 1,693 – representing an increase of about 20 over the last week or so – while authorised financial adviser (AFA) figures remain at 1,963, down from almost 2,000 earlier in the year.
A spokesperson for the Financial Markets Authority (FMA) said the regulator “considers access to financial for everyone is important and notes one of the Government’s objectives in introducing the new regulatory regime was to increase access to quality advice for all New Zealanders. That comes into effect on 15 March 2021 and our focus remains on preparing to implement it.”
But the NZ regulator is also watching how the Australian advice affordability drama is playing out.
“The FMA monitors the activity of overseas regulators to identify how trends and risks are being dealt with in other jurisdictions, and ASIC’s work in particular,” the spokesperson said.
Elsewhere last week, the FMA continued its consultation blitz with a new draft guidance on financial product advertising standards.
The wide-sweeping financial ad rules (that apply across all formats including live presentations) include some tight restrictions on promoting investment performance, for example, while also requiring upfront disclaimers.
Among the guidelines, the FMA says issuers can’t claim to be “endorsed, approved or regulated” while wholesale products must be clearly labeled as not suitable for retail clients.
The FMA spokesperson said the draft ad consultation is intended “to ensure there is a consistent approach to advertising and the industry understands our expectations and enforcement approach”.
While submissions are due by February 16 next year, the final shape of the FMA financial product ad guidance “is likely to follow its current format, laying out the principles and obligations that apply,” the spokesperson said.
“We receive regular complaints about advertising/marketing/promotional materials for financial products and we deal with them through our normal processes,” the spokesperson said. “In some cases, we may raise our concerns with issuers around their advertising, which has resulted in issuers altering the materials.”