KiwiSaver providers and life insurance companies face being fined up to $100,000 if they do not put consumers' interests first by meeting a new industry code of conduct.
The code was announced on Wednesday night by the Financial Services Council - the industry body - and will come into force from January.
It comes as the industry faces immense scrutiny from New Zealand regulators after revelations in Australia's Royal Commission into misconduct in the financial services industry.
In May the Financial Market Authority and the Reserve Bank met with New Zealand life insurance bosses and asked for written assurances there were "no material conduct issues" within their businesses.
A report on the culture and conduct of the life insurance industry is due to be released by the regulators by the end this year.
Richard Klipin, FSC chief executive, said the code was designed to build professionalism in the industry by reinforcing the need for good conduct and a strong consumer-focused culture.
"We expect and welcome a high level of regulatory scrutiny as part and parcel of how we operate. We are clear that we need to take the lead in lifting standards to deliver better outcomes for New Zealanders.
"We know that we don't always get it right and we know that we cannot be complacent."
Klipin said its members had spent two years working on the code and a lot had changed in that time.
"Two years ago we were living in a very different world. It was pre-FSLAB [ Financial Services Legislation Amendment Bill] and the FSC had a few issues of its own. One of the things that was very clear was we needed to give clear evidence around professionalism in the sector."
The industry body ran into trouble in 2016 after a number of members left in the wake of a controversial report on commissions in the life insurance industry.
Its prior chief executive Peter Neilson then resigned leaving the future of the organisation up in the air.
But Klipin has worked hard to bring the body back together and now formed the new standards.
The nine standards are relatively short and to the point but Klipin said sitting underneath that was guidance on how to meet those standards which it was still working through.
"Ultimately it's a living, breathing code."
The sector manages funds of more $47.5 billion and has around three million New Zealand customers.
Sanctions for members who are found to have made a serious breach of the code range from fines up to $100,000 to ejection from the industry body.
Klipin said the code was designed to drive good practice by having a tension between encouraging members to have good conduct and then a stick on the other side for those who did not.
Rob Everett, chief executive of the Financial Markets Authority, welcomes the code and said while it may be uncomfortable for some, a code without disciplinary sanctions was barely worth having.
"Ejection from the body itself should be the ultimate sanction and one that is feared."
Everett said the test now would be how the code was put into action.
"It's great to have a code, let's see how it's put into action.
"Whether you or I like it, expectations of customers change over time. In the same way that regulators respond to changing risk profiles within their sectors."
Everett said the code gave the sector the opportunity to see where change is needed and to adapt early.
"As you are beginning to see, slow adaptation diminishes consumer trust and in some jurisdictions has led to politicians forcing the change through rushed legislation or rule-making. That rarely goes well for anyone."
Klipin said the Financial Services Council would now spend the next two months setting up the disciplinary committee which will have between five and seven members.
The committee is not designed to handle individual complaints from consumers.
Klipin said there was already a system set up for that with consumers able to complain to one of four financial ombudsman services.
But he expected it would be those ombudsman services that could bring concerns to the disciplinary committee where they see a trend in complaints about a company or the industry.
How finance firms must behave:
PRINCIPAL ETHICAL STANDARD
1 Members must carry out business professionally, with due care,
competence and skill, and act with integrity. They must behave in a way
that promotes public confidence in the financial services industry.
2 Members must communicate with customers clearly and effectively.
3 Members must make reasonable efforts to ensure that customers are
provided with sufficient information to enable them to make informed
decisions about product and services.
DELIVERING GOOD OUTCOMES TO CUSTOMERS
4 Members must seek and consider customer feedback.
5 Members must design and distribute products responsibly.
6 Members must provide employees and distribution channel personnel
with appropriate training.
7 Members must maintain appropriate internal processes for explaining the
risks to a customer of replacing or retaining an existing product or service.
8 Members must manage conflicts of interest fairly and in a way that
promotes good customer outcomes.
9 Members must treat customers fairly.