FMA grants robo advice

The New Zealand financial sector will be able to provide their clients with unprecedented online advice from next year and will not need to wait until the Financial Advisers Act (FAA) is reformed in 2019, the Financial Markets Authority (FMA) announced this morning.

The announcement comes after 49 submissions, the majority in strong support of online “robo-advice”, were received on the FMA’s proposal to use its powers to leapfrog the 2019 FAA law reform, that states financial advice needs to be supplied by an individual (a natural person).

The FMA said it would not impose financial limits on robo-advice, and has expanded the eligible product list to include personal insurance products, mortgages and investment such as Kiwi Saver.

The consultation period, which ran from 21 June to 19 July, included submissions from; Cigna Life Insurance, Delta Insurance NZ, Fidelity Life Assurance, the Institute of Financial Advisers, the Insurance Council of NZ (ICNZ), Medical Assurance Society of NZ, Partners Life, Southern Cross Medical Society, as well as major retail banks ANZ, ASB, Westpac NZ, fintech start-ups and law firms.

The FMA said it had proposed the exemption in order to foster and promote innovation within financial markets and to improve consumer access to online financial advice, and financial advice in general.

New Zealand is already behind the US, the UK, Canada and Australia because of this clause under the FAA, and submitters to the proposal noted that they were worried New Zealand would fall further behind other jurisdictions if the FMA didn’t overrule it.

FMA Director of Regulation Liam Mason told Insurance Business that providers wanting to provide robo-advice would need to apply to the FMA to rely on the exemption and would pay a fee, similar in cost of Authorised Financial Adviser (AFA) licence fees.

The expected timeframe for such an application to be granted could take between one to three months depending on demand. The FMA is aiming to start the process in January – February next year.

Mason said ideally providers would be able to provide robo-advice “by the first quarter, the first half of 2018”.

But before this can happen, further consultation on the exemption is needed to finalise details of the application process, and to draft the exemption notice, which is scheduled for next month.

Mason said the application process to rely on robo-advice is “consistent with our gatekeeper role for other financial advisers (AFAs and Qualified Financial Entities) and provides us with increased visibility over the providers entering this (robo advice) market.”

Companies seeking to offer personalised robo-advice will have to provide the FMA with good character declarations for directors and senior managers as well as information showing they have the capability and competence to provide the robo-advice service. The exemption conditions will also be designed so that the robo-advice service is provided in a manner that is consistent with AFA requirements, Mason said.

“The exemption conditions and our ability to monitor providers will help us to manage risks and ensure consumer protection safeguards are in place,” Mason added.