Strategi provides update on financial advice regime
With transitional licences under the financial advice regime set to end in March, compliance and training provider Strategi has provided a few tips to help mortgage advisers who may be challenged by the changes.
Advisers now operate under the Financial Markets Conduct Act 2013 (The Act), which has been amended by the Financial Services Legislation Amendment Act 2019 and replaces the Financial Advisers Act.
The financial advice regime, introduced on March 15, 2021, requires advisers who provide regulated financial advice to retail clients to have a financial advice provider licence. Alternatively, advisers can be an authorised body under another financial advice provider licence.
Summing up the purpose of the financial advice regime, Strategi Group executive director David Greenslade (pictured above) told NZ Adviser that it brings the industry under one common set of standards.
“It is to bring everyone that buys or gets advice about a financial product under the one common piece of legislation (the Financial Markets Conduct Act) and its primary outcome is to ensure suitability of the advice that’s provided,” Greenslade said.
Under transitional licensing rules, next Thursday, March 16, is the last date for a financial advice provider to obtain a full licence and for each adviser to have obtained their New Zealand Certificate in Financial Services (Level 5) version 2. According to current Financial Markets Authority (FMA) figures, 1,354 FAPs are operating under (or have applied for) a full FAP licence and 1,123 authorised bodies are operating under a FAP full licence.
Among the biggest challenges for some Financial Advice Providers (FAPs) are to fully understand the implications of being responsible for the financial advice provided by those they engage, having monitoring systems in place to ensure financial advice provided is up to date, and building client files to meet record-keeping obligations, Greenslade said.
It is important for FAPs to ensure that what they stated in their licence application is what they are actually doing (e.g. if they stated a conflict of interest policy in place which is reviewed annually, the FAP should ensure this is the case), he said.
Additionally, Greenslade said it was important for FAPs to simplify the way they do business, so the FAP remains compliant, but the client experience is improved, he said.
Legislation supports digital interaction
A key principle of the Financial Markets Conduct Act is to “simplify compliance” and “make it easier to do business”, Greenslade said.
“The good thing about the legislation is it’s not prescriptive … it’s principles-based,” Greenslade said.
As the new legislation carries larger penalties for non-compliance, Greenslade said Strategi found some advisers were asking clients to sign an increased number of paper-based forms, which he said had the potential to create more barriers to doing business.
The legislation is designed to support digital interaction with clients, he said.
If advisers are finding increased documentation an issue for their clients, Greenslade suggests they review how they interact with clients, review the legislation and ask themselves ‘How can I make this simpler’?
“More entrepreneurial advisers are recording conversations with clients and using transcription services that automatically transcribe it into words … advisers are also using videos,” Greenslade said.
Standard of advice captured in Level 5 qualification
The Code of Professional Conduct for Financial Advice Services (The Code) states that the New Zealand Certificate in Financial Services Level 5 (version 2) qualification is the “minimum standard” of competence, knowledge and skill required, Greenslade said.
Towards the end of February, 526 people were completing their Level 5 qualification through Strategi, he said.
The standard of client files and the standard of advice is encapsulated in the Certificate in Financial Services Level 5, he said.
“People think Level 5 is just an academic qualification … it’s actually the standard of operation that [advisers] have to evidence,” Greenslade said.
Providing disclosure and rationale for advice
Greenslade said that the disclosure and explanation around the rationale for advice should ideally be provided at the time advice is given.
In the situation where a client enquires about a mortgage, when the mortgage adviser recommends putting in a mortgage application to a particular lender or lenders, this is financial advice, he said.
“They’ve made a recommendation that [the client] go to ANZ [for example], it’s at that point (or as soon as possible thereafter) they should give their written advice and in particular, their regulatory disclosure information,” Greenslade said.
A simple practice could be adopted where initial advice is provided in written format, along with the disclosure, and a complete statement of advice sent when the loan is finalised, he said.
“Even talking to [clients] about refixing or rolling over, that is financial advice,” Greenslade said.
TAP tool assists with compliance reporting
The Adviser Platform (TAP) has confirmed it has a compliance reporting engine that helps FAPs lodge their annual return with the Financial Markets Authority (FMA).
TAP managing director Ryan Edwards (pictured immediately below) said many clients were concerned about how patchy record-keeping and multiple systems may affect their ability to provide to the regulator that they’re doing the right thing.
“The reporting demonstrates that advisers are aware of the key metrics required to run a robust FAP - and also allows them to identify any areas of improvement,” Edwards said.
Highlights of the reporting include new versus replacement business, vulnerable clients, client servicing activity, complaints, advice files that remain open (or have important documents missing) and a full oversight of advisers working in the business, he said.
