The countdown to the new financial advisory era in NZ should kick off this Tuesday with Parliament scheduled to pass the long-awaited enabling legislation into law after it limped through a half-hearted house committee phase last week.
Bumped up the parliamentary order list from 13th earlier this week to fourth last week, the Financial Services Legislation Amendment Bill (FSLAB) completes the trifecta for the new advice regime after Commerce Minister Kris Faafoi last week released the final proposed disclosure regulations and accepted delivery of a completed code of conduct.
Parliament meandered through the house committee phase last Wednesday night, putting the finishing touches to a law that has been more than three years in the making. FSLAB repeals the 2008 Financial Advisers Act to bring the advisory industry under the auspices of the Financial Markets Conduct Act (FMC).
In the Cabinet paper detailing the updated disclosure regulation, Faafoi says the new advisory regime should come “into force around May 2020”.
While FSLAB passed the house committee hurdle unopposed, the government tacked on a number of mostly technical amendments via a supplementary order paper (SOP) . However, the SOP 195 revisions include an unheralded amendment “allowing regulations or licence conditions to specify circumstances in which an individual financial adviser cannot give advice on behalf of more than one financial advice”.
The hastily-assembled SOP add-on is intended to counter the practice of advisers working for multiple financial advice providers (FAPs) under the new regime, Faafoi says in the Cabinet paper.
Multi-FAP employment “may be legitimate” in a limited number of circumstances, the Minister says, such as an adviser having two part-time jobs.
“However, some forms of multiple provider arrangements could be concerning, particularly where individual advisers act on behalf of multiple providers in one advice conversation with one client,” Faafoi says. “Such arrangements could lead to a lack of clarity around which provider would be liable if something went wrong, and which dispute resolution scheme a consumer should complain to. These arrangements could also be concerning if they resulted in confusion for consumers about who the adviser is working for.”
With FSLAB fifth in the parliamentary production queue this Tuesday (the house sits from 2pm-10pm), the law should pass its third reading after just missing a debating slot last week – morphing into the Financial Services Legislation Amendment Act (FSLAA). After FSLAA receives the royal rubber stamp, the new advice regime will come into force within a minimum nine months after Faafoi formally approves the code of conduct. But the SOP pushes out the final deadline for when FSLAA must come into force from May 2020 to May 2021, giving the government breathing room to make any last-minute tweaks.
The law includes a two-year transition period before full licensing begins that would capture a broader population of financial advisers under the code and mostly-uniform rules.
The Ministry of Business, Innovation and Employment (MBIE) estimates about 2,240 FAPs will emerge once the smoke clears, representing 8,000 ‘financial advisers’ and 21,500 ‘nominated representatives’.
Faafoi says in the Cabinet note that further work was required to deal with some of the incentive-driven sales practices identified in the recent Financial Markets Authority and Reserve Bank of NZ joint insurance and banking investigations.
“I note that issues from across the broader financial services sector will need to be addressed through a separate vehicle,” he says. “The scope of the Bill is limited to financial advice, so any further changes here would fail to capture non-advised sales of financial products.”