"The compliance has doubled the amount of time and work interacting with a client and it may now cost a consumer $2000, rather than $1000.
"You can go to a bank and have a boilerplate (template) experience where you plug in your name, risk profile and amount of money to invest and out spits a recommendation that ticks all the boxes from a regulatory perspective. But it's not personalised advice."
The government review, being conducted by the Ministry of Business, Innovation and Employment (MBIE), will focus on the performance and operation of the 2008 Financial Advisers Act and Financial Service Providers (Registration and Dispute Resolution) Act, which came into effect in 2011.
An issues and discussion paper will be released this month. An options paper will be completed by the year's end with the final report, outlining any proposed changes to the regulatory environment, delivered to Minister of Commerce and Consumer Affairs, Paul Goldsmith, by July 1, 2016.
The Financial Markets Authority (FMA) -- the government agency that regulates capital markets and financial services in New Zealand; the Commission for Financial Capability and The Treasury are also involved. The review seeks to "not only understand the views of the sector but also the changing needs and expectations of consumers of financial advice and other financial services".
During an interview for the Herald's Capital Markets Report, the FMA accepted that the new and tighter regulations may be skewed too much towards the authorised financial advisers rather than other financial advisers.
It concedes the review may present an opportunity to re-balance the way advice is given and the financial services market is conducted.
The FMA is also mindful that its framework should encourage and enable people to get help and information about investing -- and the agency wants to know: "Do the regulations deliver the right outcomes to New Zealanders?"
A recent Colmar Brunton survey revealed only 34 per cent of New Zealanders plan to seek financial advice over the next 12 months. Some 1600 authorised financial advisers make up just a small percentage of NZ's more than 20,000 financial advisers. Most do not have to register individually because they are linked to qualifying financial entities such as banks, fund managers and brokers. Those who are not will be individually authorised by the FMA (check).
More than 6000 registered financial advisers do not require FMA authorisation as they deal with simple products such as health and life insurance. But authorised financial advisers give advice on more complex products and services such as shares, and are expected to comply with higher competency and conduct standards.
Nearly a third of authorised financial advisers have more than 20 years of experience; about 50 per cent have more than 10 years of experience and 15 per cent have been providing financial advice for less than four years. About a third are employed by or are linked to a qualifying financial entity.
The FMA says as more experienced authorised financial advisers leave the industry, it will be important to maintain the availability and quality of advice.
Michael Dowling, President of the Institute of Financial Advisers is critical: "We have not seen the regulations deliver on their primary purpose - of giving consumers confidence in financial markets and advisers.
"However, this must be weighed up against the time it takes to effect change, so we look forward to improvement in how consumers engage in the markets and value advice," he adds.
Dowling says there has been little promotion of financial advice. The way advice is now given has certainly added complexity to advisers' lives. They are focused on sticking to the rules and most advice being given is in a limited capacity - that is, 'I am only going to advise you on this investment, not a full retirement financial plan'."
Mums and Dads are missing out - the skew is in favour of institutions who concentrate on the bigger, wealthier investors.
Weatherston says the regulators have not conducted a true cost/benefit analysis. "There are layers of regulation and the unintended consequence is that it's reduced access for lower value consumers seeking financial advice."
An authorised financial adviser has to prepare a primary disclosure statement; and a secondary disclosure statement every time written advice is given. They also need an adviser business statement that describes their business, structure and process.
Statements of advice are requisite and are critiqued and monitored by the regulators. They also have to submit an annual information return to the FMA, and an anti-money laundering and counter-terrorism financing return if they are a reporting entity.
That's not all. Each authorised financial adviser has to prepared a personal development plan that sets out how they are going to improve their knowledge and services.There's another layer of regulation: If they want to make buy-sell decisions about a client's portfolio -- rather than the client making those decisions -- then the adviser has to apply for a discretionary investment management services (DIMS) licence under the Financial Markets Conduct Act 2013.
So far only two authorised financial advisers have applied for a discretionary management services licence, though applications have been extended to June 1.
Peter Christensen, chairman of Camelot Financial Advisers NZ, says the industry needed regulating but "I'm not sure they have gone about it the right way in terms of costs and time involved.
"There are 1600 authorised financial advisers out of 20,000 advisers -- it seems to me they are cracking a walnut with a sledgehammer," he says. "They have created all this legislation around authorised financial advisers to deal with 6 per cent of the market. When you consider the compliance and time and costs involved, you have to question the level of benefits that are generated for the consumer.
"If you want bang for the buck, I think the industry will be better off regulating the bank advisers who form the bulk of the industry instead of the poor old financial adviser.
"(They) bank advisers are allowed to sell their company's own product.
"Most people will go to a bank and the advisers are driven by quota and making a sale -- in some cases the client is no better off if he or she is changing an investment.
"Our job is to protect the client from running aground by setting realistic goals and running an efficient portfolio, not selling products."
FMA's general counsel Liam Mason says the review will look at whether the present framework is future-proofed and fit-for-purpose in the way people seek financial help and advice. "That's the challenge. We need to give people confidence about the (financial services) industry, and make sure they can get the advice they need and understand where to go for that advice."
Mason, who is on the review panel, says access to advice and the balance of how the regulation is applied are two key issues.
"We are completely open-minded about where this goes.
"We also want to explore whether the register and branding of registered financial advisers (RFAs) and authorised financial advisers (AFAs) is achieving the (initial) goals or whether it's confusing to people.
Have we got the balance right and are there unnecessary compliance requirements?
If there are, we will find them and strip them out," Mason says.
Pros and cons of financial advisers' reform
The Pros
• Financial advisers must be registered
• Advice on securities, land investment products, futures contracts, investment-linked contracts of insurance is covered
• Employers can be licensed as qualifying financial entities to oversee individual financial advisers' activities
• Brokers face obligations on handling client money and property
• Dispute resolution services are free-of-charge to consumers
• Advisers face penalties for failure to meet legislative requirements.
The Cons
• Confusion between registered financial advisers (RFAs) and authorised financial advisers (AFAs)
• Public is unaware of the limitations of advice from staff of qualifying financial entities
• Public needs to understand the time and effort to prepare comprehensive financial plans
• Increased compliance costs for financial advisers mean increased charges to consumers
• Churn in life insurance products and KiwiSaver business.
What is needed
• Reduction in the complexity of regulations
• Less compliance costs and lower fees so smaller retail clients will have more access to financial advisers
• Clear up confusion over financial adviser categories and type of service
• Leveraging property investments should be come under the rules
• Adequate conflict of interest disclosure
• More work on promoting investor confidence in financial advisers.
Source: Institute of Financial Advisers (edited)
