Govt focus shifts from financial regulation to literacy: Faafoi

Commerce Minister Kris Faafoi wants to promote financial literacy. Photo / File

New legislation governing the conduct of those offering financial services should get its first reading in parliament later this week and Commerce Minister Kris Faafoi is promising that after that he will shift his attention to promoting financial literacy.

The Financial Markets (Conduct of Institutions) Amendment Bill will codify how financial institutions and their intermediaries have to treat consumers fairly and Faafoi said he hopes it will be passed before the September election.

His comments yesterday to a conference for financial advisers - organised by the Financial Services Council, the Financial Markets Authority and the Ministry of Business, Innovation and Employment - came as those advisers grapple with how to meet the June 29 deadline when a new licensing regime comes into force.

Advisers have to either become licenced themselves or work as a nominated representative for another licenced financial advice provider. Licenced financial advice providers will be responsible for the advice their nominated representatives give, which will mean the licence holders must have processes and controls in place to limit the nature and scope of the advice given.

Advisers can also apply for a transitional licence valid for up to two years from June 29.

Faafoi acknowledged that change "can be challenging" and the industry needs time to adapt to new rules – "I don't think you want too much more change" – but that his key focus is on fairness for consumers.

He disputed a suggestion that it is only the very poor who are the most vulnerable.

"No matter how much you earn, generally New Zealanders aren't very good at managing their money," Faafoi said, adding that the appointment of Jane Wrightson as the new retirement commissioner provides an opportunity to find "better ways to start talking about money and financial literacy."

The licensing deadline is clearly preoccupying the industry with advisers demonstrating they're even counting the days – 139 days, or 96 business days, to go as of Tuesday.

The FMA's principal consultant, Derek Grantham, illustrated how tight the time-frame is becoming – the time to process licence applications varies but it can take up to 60 days, he said.

"It's critically important that you do get onto the system and apply. Don't leave it until the last minute," Grantham said. He added that the volume of applications has been steadily building.

As part of the process of becoming licenced, advisers will have to abide by a code of conduct – Faafoi has approved its third iteration due to come into effect with the licensing regime.

But chair of the Financial Advice Code Working Group, Angus Dale-Jones, warned the conference that the code is still a work in progress, particularly when it comes to defining 'competence.'

"We chose to park that question because we got such a divergent range of feedback" with no agreement within the industry and the definition is also "highly contentious" in Australia as well.

"We know this is something that requires more work because of that divergent feedback, but let's not rush to tinker, let's see how it goes," unless some external factor makes developing a definition more urgent, he said.

Nevertheless, when Dale-Jones asked for a show of hands from those feeling any "anxiety" about the competence requirements of the new code, only a few in the audience did so.

Financial markets manager at MBIE, Sharon Corbett, said the licensing regime should level the playing field, help to create trust and confidence in financial advice and that ultimately the aim to that more New Zealanders will seek such advice.

MBIE is currently working on developing new disclosure rules and hopes to release them in March, and that the industry will be given time to transition smoothly to the new rules.

Despite the amount of change the industry is facing, it doesn't appear that many financial advisers will exit the industry rather than meet the new requirements.

Financial Advice NZ chief executive Katrina Shanks told the conference she had surveyed her members late last year and only about 7 per cent were contemplating exiting the industry, which was encouraging.

Asked how the new regime will deliver for New Zealanders, Grantham said that it should build a platform of trust and confidence in the sector.

"To me, everything else is almost detail. If we get that right, I think the sector's going to go from strength to strength," he said.

Since only about 20 percent of New Zealanders say they have a financial adviser, "that's a massive opportunity for you."

- BusinessDesk