The New Zealand Ministry of Economic Development is consulting with consumers and the financial services industry on new disclosure requirements for financial planners.
The regulatory environment for New Zealand financial planners lags those in countries such as Australia and the UK. Discussion papers are now being released following the introduction of the Financial Advisers Act 2008.
The ministry is consulting on potential new disclosure requirements for financial planners. Under the Act, an employee or ‘agent’ of a qualifying financial entity has no personal disclosure obligations, nor do planners who are restricted to advising only on certain products. But ‘authorised’ financial planners will be subject to more stringent regulatory conditions following the implementation of the Act.
The ministry’s discussion paper discusses various options for the disclosure of remuneration as well as any “other interests and relationships”, including the potential for prescribed wording. The ministry hopes this will aid consumers’ understanding of remuneration and “how this may influence the adviser’s advice”.
The paper states that “the most important part of the disclosure statement for the client states how an adviser is paid, how much the customer is paying and any other incentives the adviser may have that could influence the advice they give”.
“Other than the services that the adviser can provide, these are the key factors that differentiate advisers,” the paper states.
“When an adviser charges an upfront fee for all their services, the incentives they face are very clear to the client. However, when an adviser receives varying commissions or sales targets or has other relationships with certain institutions or persons, the incentives on the adviser could be seen to influence the advice they provide.”
Included in the discussion paper is a question about whether or not advisers who do not receive commissions should be able to call themselves “independent” or “unaligned”.
The paper also looks at the potential disclosure of the products and services an adviser can offer, as well as the limitations of their offering, and the disclosure of indemnity insurance. The ministry does not propose to prescribe disclosure around membership of professional bodies, adverse findings by a court or commission or criminal convictions.
The Financial Advisers Act 2008 relates to the disclosure practices, competency and accountability of financial advisers, including management of conflicts of interest.
Full implementation of the Act is scheduled to be completed by December 2010.
