The ongoing Financial Advisers Act (FAA) review has revealed a sharp divide between institutions and most other interested parties, according to an Investment News NZ (IN NZ) analysis.
After compiling responses from almost 150 entities to a number of key questions contained in the Ministry of Business, Innovation and Employment (MBIE) FAA ‘Options Paper’, IN NZ found banks and insurance companies were most likely to favour the status quo.
For example, of the 10 entities wanting to retain the current tiered adviser system – comprising authorised and registered financial advisers (AFAs and RFAs) – eight were either banks, insurers or industry bodies representing their interests.
Almost 80 per cent of those submitting on the Options Paper backed a proposal to ditch the poorly-understood AFA/RFA system in favour of a single adviser regulatory designation.
Likewise, institutions dominate the list of those respondents opposed to introducing a ‘sales’ category into the mix with 11 of the 16 entities in this camp either banks, insurance companies, stockbrokers or an industry body.
About 75 per cent of the submissions support the introduction of a ‘financial salesperson’ label of some description while 15 per cent are neutral on the concept.
Banks, insurers and associated groups also make up just under half of the 21 entities explicitly opposing an ‘opt-in’ condition for wholesale advice clients. Under the current arrangements, clients who meet any of the several definitions of a wholesale investor must opt-out to be deemed as a retail client.
Although nine financial adviser-related submissions side with the institutional point-of-view on keeping the current wholesale advice provisions, just over 40 per cent favour an opt-in clause with a similar proportion expressing no opinion on the matter.
However, the wholesale opt-in issue did prompt a number of strongly-worded responses, including from one adviser who calls it “probably the best idea so far” in the FAA Options Paper.
“There are thousands of clients out there that are currently as by the definitions in the acts etc regarded as wholesale and I would wager that 90% have not opted out of being wholesale and have no conscious understanding that they should do to receive better protection as a ‘retail’ customer,” the submission says.
The wholesale advice debate has also received airplay recently in an adviser roadshow hosted by Heathcote Investment Partners.
According to a Financial Markets Authority (FMA) spokesperson, “it is very difficult to pinpoint or extract data on whether an AFA is not giving advice to retail clients”.
While AFAs can describe themselves on the Financial Services Provider Register (FSPR) as ‘not providing any financial services to retail clients’ to escape joining a dispute resolution scheme (DRS), the FMA spokesperson said this could “be for a variety of reasons”
“[For example] they may be on maternity leave or in between jobs or licensed for a Financial Adviser Services (FAS) scope which does not require them to be a member of a DRS,” the spokesperson said.
Of the 68 AFAs not currently members of a DRS only two are licensed to provide financial advice to wholesale clients only, the FMA data shows.
“Most of the AFAs who are licensed for the FAS scopes ‘Financial Adviser Services in Relation to Category 2 Products Only’ or ‘Financial Adviser Services to Wholesale Clients and Provision of Class Services’ are actually members of a DRS,” the FMA spokesperson said.
The IN NZ analysis also shows the country’s financial services industry overwhelmingly support doing away with the distinction between ‘class’ and ‘personalised’ financial advice. Only 10 submissions – six from banks, insurers or related bodies – back the existing FAA rules requiring different levels of disclosure for ‘class’ and ‘personalised’ advice with about 30 adopting a neutral stance.
Almost 80 per cent of the MBIE Option Paper submissions support the status quo for financial product commissions. Just 12 entities explicitly call for a ban or limitation on commissions, the IN NZ analysis shows, however, a number of others express concern about ‘soft dollar’ payments.
The MBIE website lists 167 submissions on the FAA Options Paper from just under 150 entities (some of which supplied separate documents detailing responses proposed changes to the FSPR). Roughly half of the submission came from advisers with 18 insurers, five banks, two stockbrokers, and five fund managers also filing feedback. The remaining submissions came from a mix of industry associations, ancillary financial services firms, lawyers, government, and academics.
MBIE plans to make final recommendations on FAA changes to the government by July 1 this year. James Hartley, MBIE head of financial markets policy, leads the FAA review project.