Financial Advice New Zealand says politicians cast the net too broadly in defining regulated financial advice and wants Commerce Minister Kris Faafoi to draw a clear line in the sand to avoid capturing straight sales.
Parliament's economic development, science and innovation select committee, chaired by National MP Jonathan Young, reported back to the House on the Financial Services Legislation Amendment Bill last week, recommending a handful of changes. The proposed law seeks to iron out some of the confusion over clunky designations and require advisers to put their clients' interests first. The goal is to make it easier for customers to understand the difference between a transactional sale and more holistic investment advice.
Under the current regime, authorised financial advisers have to meet certain education and ethical standards to sell more complicated products, whereas registered financial advisers need only to sign up to register to sell simpler services, while staff at qualifying financial entities, such as banks and fund managers, are covered by their employers.
The select committee report said the definition of what constituted a person giving financial advice was too narrow. While MPs considered the definition needed to be broader, they said they didn't want to cover all forms of financial planning advice, such as budgeting services, and backed the insertion of regulation-making power.
FANZ chief executive Katrina Shanks said the committee's report didn't make clear what constituted sales and what was advice, which she says would have provided a stronger framework on which to set out the regulations in the adviser code.
"What we're saying is put into the legislation the demarcation between pure sales and financial advice, then let the code go and deliver what you mean for financial advice, rather than the code having to deliver for both sales and financial advice," Shanks said. "They totally ignored pulling sales out of advice. Anything that touches product used for financial advice, therefore is financial advice."
Shanks hopes Faafoi will be open to FANZ's advice, but the fact that the bill passed through committee relatively intact indicated he was reasonably happy with it.
"It makes you feel that he hasn't heard this conversation too clearly," Shanks said. "Our job is to bring to his attention where it can be improved. We think this part is wrong and it's actually a simple fix."
Other amendments recommended by the committee include adding KiwiSaver fund switching to regulated financial advice, amending client duty obligations to ensure they don't get too broad, limiting advice by nominated representatives of licensed firms and limiting exclusions from regulated financial advice by some professions.
Shanks said small firms have been dealing with the uncertainty of the regime for some time, and that passing the legislation just sets the framework for how things will end up operating. Other work still in the pipeline includes licensing, disclosure statements, and the code, which she said was hard on small adviser firms.
When introducing the bill to the House in December, Faafoi acknowledged the risk small operators faced from regulation and said he wanted "the legislation seeks the right balance between ensuring that consumers can access financial advice they need without imposing any undue compliance costs, particularly on those smaller businesses providing financial advice."