Warning for Hawke's Bay financial advice services sector

Stewart Group advisory board member Peter Mancell. Photo / Duncan Brown

A leading Australian financial adviser is warning Hawke's Bay financial advisers could be forced to raise fees, reducing the amount of people who could afford financial advice if new government proposals are not changed.

Speaking to a group of Hawke's Bay-based financial advisers during a visit to Hastings, Mancell Financial Group managing director Peter Mancell said proposed changes to regulations under the newly-introduced Financial Services Legislation Amendment Bill (FSLAB) would likely see New Zealand end up with a similar system to Australia.

He suggested that would also result in the same problems being repeated on the other side of the Tasman Sea.

"Given what I've seen from FSLAB there seems to be quite a lot of similarity with what we've experienced, over what is now an extended period of time, across the ditch."

Australian reforms in 2015 saw every financial adviser either have to cease giving tax advice or become a tax financial adviser.

"That meant our continuing education requirements changed and we all had to either had certain experience or qualifications to meant those standards.

"Not only is it going to be hard for the younger people coming in who will have very specific qualification requirements but also for those of us who are already in the industry by January 1, 2021, every adviser will have to have undertaken a specific professional knowledge determination. And, by January 1, 2024, every advisor will have to have an approved degree."

That meant someone with a long history in the industry, holding several degrees and diplomas could still be "deemed incompetent", unless they went back to university to pass an approved degree.

"It's a major hurdle."

Reform also led to Australian life insurance commission rates being standardised at the start of this year.

"Whereas in days gone by up front commissions could be anything up in excess of 100 per cent of the premium now it's 80 per cent. From January 2019 that 80 per cent then drops to 70 per cent and from January 2020 that 70 per cent will drop to 60 per cent."

Mr Mancell, who is also on the advisory board at Hastings' Stewart Group, added that the Australian industry now paid the government $900m in fees as a result of changes.

A further levy would come into effect next year, charging $1500 per adviser.

Based in Burnie, Tasmania, Mr Mancell said due to combined costs, it now costed MFG more than $1000 per year, per client, just to "open the doors".

"That's before any adviser gives any client, any advice."

That meant new clients had to be able to pay a $2500, ongoing yearly retainer.

"That immediately negates everybody with about less than $300,000 to $400,000 to invest.

"We've absorbed some costs but we've had to be more selective as to who we can afford to work for, and at a community level, that's bad."

Mr Mancell added that while that would not have affected very many of the company's existing clients, that situation was certainly not the common situation in Burnie.

FSLAB has already had its first reading in Parliament and is now awaiting a report from a select committee and it was "highly likely" that if the draft bill went through without change New Zealand would end up with a similar licensing structure.

"So, I think you would be wise to keep an awareness of what's happened across the ditch because quite a lot of what we've seen you are going to experience."

Finance Minister Kris Faafoi last month said he hoped those who give financial advice will get involved to ensure the new code will be manageable both for advisers and consumers.

Once the new code of conduct has been approved, businesses will have about nine months to get a transitional licence. Businesses will then have two years to become fully licensed.