The revamped financial advice regime will kick off on 15 March 2021, nine months later than originally planned, and will include new disclosure regulations released on Friday. We give you the details.
The regulations require information to be:
- made publicly available on a website (if the provider has one) or on request – information includes the provider’s licence status, types of product advised on, fees that may be payable and commissions or conflicts of interest that may apply
- given to the client once the scope of advice becomes known – information includes material limitations on the scope of advice, the disciplinary history of the person giving the advice, and the fees, commissions or conflicts of interest that may apply
- given to the client when the advice is given – includes changes from the information referred to in the point above, along with confirmation of fees payable and applicable commissions and conflicts of interest, and the legal duties of the provider, and
- given if a complaint is received – information includes the provider’s internal complaints process and how to access its external dispute resolution scheme.
There have been significant divergences from the exposure draft of the disclosure regulations released in October 2019, the effect of which should be to make the system more workable in practice. Some of the changes from the exposure draft include:
- removal of the record keeping requirement for disclosure, because of the compliance burden and because it is already provided for more flexibly through the Financial Markets Authority (FMA) standard licence conditions
- adding a materiality threshold for disclosure to where a reasonable client would expect the information to, or to be likely to, “materially influence” the decision to seek, obtain or act on the advice. This applies to disclosure of limitations, conflicts, commissions and incentives, as well as changes to information
- ensuring clients receive the same information when the nature and scope of the advice is known whether they sought the advice or not, and extending the relevant regulation’s reach to advertising that contains regulated financial advice
- allowing flexibility in the timing of disclosure when the nature and scope of the advice is known and when the advice is given (including allowing the disclosure to be given at the same time), to better fit the flow of an advice interaction
- requiring disclosure of complaint information only if a complaint remains unresolved to the complainant’s satisfaction after two business days
- amending the definition of complaint to align with the FMA’s standard licence condition and the definition used by the approved dispute resolution schemes and in the Credit Contracts Legislation Amendment Act 2019
- removing the 12 month time limit for relying on previous disclosures
- replacing the requirement to provide information in hard or electronic copies as requested by client with a requirement to provide the information ‘in writing’
- ensuring product providers whose products are being advised on do not always need to be named individually, with a descriptor now being permitted (e.g. NZX Top 50)
- removing the requirement to provide individual contact details and to identify individual nominated representatives (it was accepted that this would have added cost but little value, particularly in high-volume straightforward advice situations)
- removing the requirement to disclose fees for ‘acting on the advice’, on the grounds this could require disclosure of product fees charged by unrelated third parties (e.g. insurance premiums or MIS manager fees)
- requirements to disclose duties information publicly, and
- narrowing the range of regulatory actions and proceedings that must be disclosed.
We welcome the changes and consider that, as amended, the disclosure regulations strike the right balance between protecting customer interests without unduly burdening providers with compliance requirements. Providers will need to work through the practical processes of giving the disclosure, and there may still be challenges in some situations such as roboadvice.
If you would like more information on this topic or its implications for your business, please get in touch with one of our contacts.
Our commentary: Draft financial advice disclosure regulations released