NEWS
Commission structure may need Govt intervention: FMA An insurance industry reluctant to move on high upfront commissions may find the Government does it for it, the Financial Markets Authority says. It and the Reserve Bank released their response to insurers’ reports on what they planned to do as a result of the regulators’ conduct and culture review of the sector. The FMA and Reserve Bank said they were disappointed. Some work plans were not deep or broad enough, chief executive Rob Everett said, and even those that were did not make it clear they were committing the resource required to deliver effectively on them. Everett said the FMA remained concerned about high upfront commissions being paid to advisers. There had been no movement from the industry at all, he said. “If they keep saying ‘we’re not willing to contemplate change unless the Government makes us’ that’s exactly what might happen.” Everett said New Zealand would remove commission “at its peril”, as shown by the Australian and UK experience. But he said the model needs to be shown to be working properly. “Life insurers aren’t really accepting they have responsibility for how their products are being sold.”
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Reforms may miss the mark
Financial advice reforms are at risk of not delivering on one of their key stated aims, one law firm says.
Nicole MacFarlane, a special counsel at DLA Piper, said the reforms of the financial advice sector as a result of the Financial Services Legislation Amendment Act should improve the quality of financial advice provided to retail customers. But she said they were likely to fall short on one stated aim: improving access to advice. Financial capability had been identified as a significant factor in ensuring people had access to good quality advice, she said. The reforms did nothing to aid that. Work on improving financial capability needed to start with children, she said. “It’s good they are doing what they are doing now to improve the standard of advice,” she said. “But what is it going to do about access to advice when financial literacy is such a big factor in that. How are these reforms going to work towards
improving financial literacy?” She said the industry could not boost financial literacy by itself and would need Government support. “Currently there are eight entities permitted to provide personalised advice through digital advice facilities. However to date very few of these facilities give truly personalised advice. Has the ability of such facilities to reach a wider audience been overstated? What else can be done to make advice more accessible?” She said the Financial Markets Authority's move to require KiwiSaver providers to apply assumptions set out in the FMCA regulations to their online investment calculators would restrict people's ability to personalise those tools. “Quite apart from the question of whether the amendment regulations can be extended to such calculators in this way, it must be asked how such restrictions benefit investors? Arguably it’s a backward step in the fight to improve financial literacy and encourage investors to seek good quality advice.”
Advice rules created ‘two-tier’ market, working group says More advice is needed to boost the fortunes of the New Zealand capital markets, a new report says. The Capital Markets 2029 working group has released its recommendations to rejuvenate the NZX. Among them are the suggestion that KiwiSaver members be allowed to selfdirect and invest with multiple providers, mandating employers' contributions, reinstating a kickstart payment for members who are older than 18, changing tax rules to make KiwiSaver contributions and returns tax-free, simplified disclosure requirements for regulated offers, a review of continuous disclosure liability settings, and a centralised process for AML. But it also called for changes to the way advice is delivered. It said the FMA should issue guidance in respect of what was expected of advisers offering advice on shares. "Financial advisers are hesitant to recommend equity products where
research is not readily available, even though this was not the intention of the current legislation. "This means that many small market capitalisation stocks receive limited focus by the broking community." Regulation of financial advisers had been effective in upskilling advisers, it said and those who specialised in capital markets were paying closer attention to asset allocation and portfolio construction. "For the advisers that specialise in capital markets, closer attention to asset allocation and portfolio construction for retail investors has been a focus." But it said the requirement that advisers have reasonable grounds to recommend a product had been interpreted conservatively as requiring in-house research, produced by analysts within the institutional research divisions of their firms, in order for an adviser to recommend a security. A guidance note from the FMA saying that reasonable grounds need not always mean research had been ignored.
