Financial adviser shake-up proposed by Govt

Proposed changes to financial adviser laws aim to make it better for consumers.

The government has come up with a range of options to change the financial advice industry in a bid to make it better for consumers.

Financial adviser legislation was introduced in 2008 to regulate the industry for the first time.

But as well as bringing positive change it has also had some negative consequences for people trying to get advice by making it overly complicated.

A review of the current system found it is hard for the public to know where to seek advice and the terminology is confusing.

Higher compliance requirements also mean some advisers are opting not to provide personalised advice leaving a gap in the market.

The review also found consumers may be receiving advice from people who do not have adequate knowledge, skills or competence levels and that consumers do not understand that there are different types of advice and that their advice may not be personalised.

The Ministry of Business, Innovation and Employment has come up eight areas it would like to amend as well as three packages of proposals for changing the industry ranging from a lighter approach to much greater regulation.

Proposed amendments include
• extending ethical requirements to all advisers and/or clearly distinguishing between whether a person is an adviser or a salesperson and has to put the interests of the customer first
• allowing advice to be provided online through a licensed entity
• providing more information to help consumers find an adviser and changing the terminology for advisers to make it more consumer-friendly
• requiring all advisers to meet minimum competency standards

Under the current scheme there are three types of advisers, authorised, registered and QFE advisers.

Authorised advisers have to meet minimum qualifications and ethical standards including following a code of conduct and putting their customers interest's first.

Registered financial advisers are not required to put the consumer's interest first and QFE Advisers only have this obligation in certain circumstances.

Under the first of the ministry's package proposals there would be minor changes but with a greater focus on the consumer including all advisers having to put their customer's interests first and provide a simple form of disclosure.

Terminology would be made more user friendly and online financial advice would be made possible.

The second package would include all the the package one changes as well as imposing more requirements including that all advisers must provide a service which matches their customer's requests and a licensed quality mark would be developed for expert financial advisers, as well as financial adviser businesses requiring a license.

The third package would place more focus on distinguishing between sales and advice with sales people not required to put the consumer first but having to make that clear to the person.

Sales people would only be allowed to sell their own financial products an industry bodies would be more involved in helping their members comply.

Commerce minister Paul Goldsmith said the proposed changes were aimed at increasing consumer confidence in financial advisers and their advice so that people can make informed decisions about their money.

"We hope to make improvements to this regime so that all New Zealanders, including those with simple questions and without large sums to invest, have access to trusted financial advice should they want it."

Submissions on the options paper must be in by February 26 with the final report on changes to the act due to be presented to the minister by July 1, 2016.