Financial advice affordability has been flagged as a potential problem for NZ consumers in a new parliamentary committee report handed down last week.
The Finance and Expenditure Committee (FEC) summary report of changes in NZ post the Australian Royal Commission (ARC) into financial services says feedback from local regulators suggests advice is too pricey for many Kiwis.
Both the Financial Markets Authority (FMA) and the Reserve Bank of NZ (RBNZ) told the parliamentary committee “that many customers making investment choices, or decisions to borrow money, often did so without obtaining competent and independent financial advice”.
“This appeared to be because such advice can be expensive,” the FEC report says. “The committee was concerned that the cost of financial advice may be limiting the ability of many customers to assess the suitability of the financial products recommended to them by financial institutions.”
Earlier this year the Australian Securities and Investments Commission (ASIC) laid out plans to improve access to affordable advice following similar problems across the Tasman. Much of the rising cost of financial advice has been sheeted back to onerous compliance expenses following decades of regulatory add-ons, including some introduced in the wake of the ARC.
More recently, Australian legislators have moved to roll back some advice rules to ward off a mass exodus that has already seen thousands quit the industry over the last few years. Last week, for example, Australian Financial Services Minister, Jane Hume, signaled the government would ease the requirement for all advisers to be degree-qualified.
Hume also released draft terms of reference for the Quality of Advice Review set for February 2022 – another in a long line of Australian advisory industry consultations.
“In particular, the Quality of Advice Review aims to identify opportunities to streamline and simplify regulatory compliance obligations to reduce cost and remove duplication, recognising that costs of compliance by businesses are ultimately borne by consumers,” the Australian government statement says.
Meanwhile, the FEC report notes that while NZ financial services business may have dodged the worst practices revealed in the ARC, the committee – chaired by Labour MP, Duncan Webb – backed “changes in regulations and legislation designed to mitigate the types of misconduct issues found by the Royal Commission”.
The report says post-ARC legislative moves in NZ such as the proposed insurance contracts law and the delayed Financial Markets (Conduct of Institutions) Amendment Bill – or COFI – were positive for consumers.
As well as tackling insurer and bank cultures, the FEC report says regulators have plans to investigate mortgage brokers “including the appropriateness of their incentives… as part of developing new regulations and legislation”.
“We recommend that all organisations in the financial sector continue to improve their processes and systems so that they create a culture which is focused on the needs of the customer. It is pleasing to see developments like the ‘balanced scorecard’ being implemented,” the report says. “We believe that improving the conduct and culture of all financial institutions will result in better financial outcomes for all New Zealanders. We support the developments that will make this a reality.”
COFI has been stranded in parliament since an aborted second reading in June. The legislation was 17th on the order paper on the last parliamentary sitting day for 2021 (December 15), just behind the Organic Products Bill.