Qualifying financial entities (QFE) shouldn’t have to disclose more detail about their operations, according to the Financial Services Council (FSC).
In its submission on the review of the Financial Advisers Act (FAA), the FSC, which represents large funds managers and insurers, said there “would be no great benefit in increasing the transparency of the QFE obligations to the public”.
“Whilst there is a general lack of consumer understanding about the regulatory regime, the lack of transparency around the obligations of a QFE aren’t a specific key driver of that,” the FSC submission says. “There is more benefit in a consumer clearly understanding the type of service they are engaging with, financial advice versus a product sales service, than understanding the details of a QFE regulatory requirements.”
According to Financial Markets Authority (FMA) figures, about 20,000 advisers serve under QFEs, representing by far the largest part of New Zealand’s financial advisory industry. About 6,000 people are registered financial advisers (RFAs) – able to deal in ‘simple’ products – while a further 1,800 or so authorised financial advisers (AFAs) are licensed to advise on more complex investment products.
Peter Neilson, FSC chief, told Investment News NZ (IN NZ) while the current regime has benefitted QFEs at the expense of non-aligned firms, institutionally-owned firms are well-placed to police their underlying advisers.
“QFEs are usually backed by strong balance sheets and they have reputations to defend,” Neilson said.
While the FSC backs the existing QFE model, its submission calls for a radical overhaul of the advisory system with a clear distinction between ‘sales’ and ‘advice’.
Under the FSC proposals, anybody who wished to give personal financial advice – regardless of product – would be classified as an AFA. As well as abolishing the RFA tag, the FSC says this would open up the way for more lightly-regulated financial ‘salesman’, who would be policed by the Consumer Guarantees Act.
However, any non-advised financial sales would also have to carry a clear statement along the lines of: “WARNING: I am selling this financial product on behalf of [name of financial service provider]. It is my job to sell this product and I am rewarded for this sale. I have not taken into account your particular financial situation or goals. If you want financial advice you should talk to an authorised financial adviser.”
Neilson said a revamped FAA should also include an enhanced adviser register along the lines of the new Australian system, mandatory professional indemnity insurance for AFAs and clear guidelines on ‘robo advice’.
“Robo-advice with sales execution under current legislation is financial advice,” the FSC submission says. “The regulatory regime for financial advice and sales in the future will need to incorporate robo-advice.”
Neilson said automated systems would inevitably change the financial advice landscape in New Zealand – as is happening offshore now – as younger, tech-savvy consumers or lower-balance investors seek solutions.
“Whilst no one in New Zealand has an offering similar to that offered globally, this will change over the next few years and both FMA and [the Ministry of Business, Innovation and Employment] are aware of the challenges this will bring in term of regulating the advice, [anti-money laundering] etc,” the FSC submission says. “The one major difference globally compared to face to face advice is the low cost of product offerings [such as exchange-traded funds]. This is something that New Zealand given its market size might have difficulty reproducing.”
More than 160 FAA submission were lodged with the Ministry of Business, Innovation and Employment by the July 22 closing date.