The Financial Advisers Act 2008 was enacted to increase the responsibility of Financial Advisers towards their clients. The current legislation is complicated with a number of definitions that confuse people. To understand the legislation, you need to understand:
- An Authorised Financial Adviser (AFA) is a higher designation than a Registered Financial Adviser (RFA)
- Personalised advice is more detailed than Class Advice (which is generic information)
- You are a wholesale investor unless you ‘opt out’ of being one. This means that if you have in excess of $1 million in total assets (including the equity in your home), your adviser doesn’t need to give you personalized advice, or take your situation into account.
- Only an AFA can advise or inform you about Category One products (Investments, KiwiSaver – but not including Term Deposits).
- An adviser can give you Full Advice, Limited Advice or No Advice, but you should sign off on what kind of advice it is.
- Only an AFA is required to declare to you how much they are remunerated for working with you.
- Only AFA’s are required to abide by the Code of Conduct for Authorised Financial Advisers.
As a result, only the 1800 AFA’s in New Zealand are required to have ethical obligations towards you. These include:
Code Standard 1 – an AFA must place the interests of the client first and must act with integrity.
Code Standard 8 – an AFA must take reasonable steps to ensure that the personalised service is suitable for the client.
There are a handful of advisers in New Zealand who claim that they are ‘fiduciaries’ as they have been ‘trained to be a fiduciary’. Very simplistically, this means that the adviser is required to ‘act in their clients’ best interests’.
It is estimated that there are 26,000 QFE employees (mainly bank employees) and 6500 Registered Financial Advisers (RFA’s) that don’t have these ethical requirements.
At Moneyworks, it is a core ethic that we always aim to act in our clients best interests, as well as making sure that we put our clients interests first. The third point of our mission is: The Golden Rule ‘Do unto others as you would have them do unto you.’
Financial Adviser Act (FAA) 2008 Review
The Financial Adviser Act has a legislative requirement to review its success in 2016. MBIE and the FMA have begun the consultation process and the second round of submissions closed on 29th February 2016. These submissions were responding to the MBIE Options Paper, which proposed three packages.
Packages one and two proposed introducing ethical standards and standard disclosure for all advisers, which we fully agree with.
However, package three proposed carving out Sales from Advice, as long as the ‘sales person’ was an employee and could only sell their employers products. The ‘salesperson’ had to declare that the consumer was being ‘sold to’.
Moneyworks made submissions at each stage of the review and are concerned about the impact of the carving out of sales people, and requiring no ethical standard, no disclosure and no education.
We will keep you up to date with relevant developments in the consultation process and review of the Act.
If you have any questions, please don’t hesitate to contact us by emailing your adviser by clicking here. (firstname.lastname@example.org.)
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By Carey Church