The Financial Services Legislation Amendment Act 2019 (FSLAA) came into effect on 15 March, marking a major change for insurance brokers and the wider financial advice sector.
The changes were designed to improve financial advice across New Zealand by making it easier for customers to understand and access.
Under the new regime, brokers providing advice to retail clients will need to hold a Financial Advice Provider (FAP) license, or be an authorised body under another
FAP license.
It's a reasonably significant change for the industry. Nick Summerfield, financial services partner for Anthony Harper, says there have been “a few small teething issues” with the new regime.
“For example, some advisers not being properly linked to a FAP on the FSP register,” he says, “and despite really clear messaging from FMA, the Financial Services Council, and others I think there is still a degree of confusion in some quarters about the competency safe harbour.
“However, my sense is the vast majority of the industry has really embraced the change and is well prepared to move forward,” Summerfield says.
“I have seen some really neat examples of FAPs (and advisers) taking advantage of the flexibility of the new disclosure rules to improve how they communicate with clients.”
A Financial Advice Provider (FAP) must:
• Meet the new standards of competence, knowledge and skill included in the Code of Professional Conduct for Financial Advice Services; and
• Meet the duty to ensure the client understands the nature and scope of the advice at all times; and
• Give priority to the client’s interests where there’s a conflict of interest by ensuring the financial advice is not materially influenced; and
• Exercise care, diligence, and skill of a prudent financial adviser at all times; and
• Comply with the new regulations regarding the disclosure requirements and the duty to ensure those disclosures are not misleading, deceptive or incomplete.
Under the new regime all FAPs should hold a transitional licence and be able to create and maintain records and have an internal complaints procedure.
By now, all FAPs should have updated disclosure documents to include all the necessary information required by the FSLAA, and it is a requirement for the FAP’s website to include the Financial Advice Provider Disclosures.
All FAPs can now apply for a full licence under the regime and all licence holders will be required to hold a full licence in two-year’s time to be able to continue to provide financial advice or engage others to give regulated financial advice on their behalf.
For Crombie Lockwood, the new regime has been a welcome evolution for the broker, says chief broking officer Mark Jones.
“The changes are designed to raise the performance and the professionalism of the insurance sector, and that’s not a bad thing,” says Jones.
“It’s no secret the insurance industry has struggled with consumer trust and a general degree of scepticism and we are optimistic the new legislation will help by increasing transparency and delivering greater reassurance to clients.”
Jones acknowledges there was some initial hesitancy around what FSLAA would mean for the business but says concerns were quickly alleviated and the benefits soon realised.
“We’ve long been advocates for a ‘client-first’ experience because we believe high standards of conduct are part of doing good business,” he says.
“Strong processes, accountability and heightened competency are fundamental to success and that’s what underpins this new regime.”
While implementing new ways of working requires extra effort and there’s going to be greater scrutiny, says Jones, the reassurance and confidence the new approach gives to clients outweighs any of those challenges.
By now FAPs will have implemented the changes required by the FSLAA, and it appears to be business as usual under the new regime.
“The new financial advice regime has changed the profile of our regulatory obligations but hasn’t changed our commitment to our clients,” says Rodney Knight general manager - risk & compliance at Rothbury Insurance Brokers.
“We first considered how our existing business operations support the principles and requirements set out in the Code of Professional Conduct for Financial Advice Service,” says Knight.
“This helps everyone understand why particular activities are important and how they are linked to providing a high level of service and it also gives our team assurance that they are meeting all of their new obligations as part of ‘business as usual’.”
By documenting these links, says Knight, the company can demonstrate how we meet the aims of the Code in practice.
“To ensure we comply with the new disclosure regulations, we changed some key communication templates to incorporate information in the way the regulations require,” says Knight.
“We also published our terms of business on our website to increase transparency for clients and introduced ‘behind the scenes’ activities to achieve consistency wherever appropriate, while continuing to tailor our advice service to individual client needs.”
The greatest concern our brokers have expressed is that changes in process and communications to meet regulatory requirements might impact how quickly we can respond to clients, says Knight.
“Any significant regulatory change can be expected to affect the time things take to get done,” he says, “and sometimes our people need to take extra time to help busy clients understand the new disclosure information or find the insurance package details they are looking for in the new format”.
“Our team takes pride in their ability to respond quickly and professionally to meet client needs so this was the most important thing on their minds”.
As Rothbury Insurance Brokers settles into the new regime, the company is very focused on ways to improve and speed up our processes, says Knight, while continuing to meet the compliance requirements.
“We are listening to clients and using their feedback to prioritise what we focus attention on.”
The switch to the new regime was “far from painful” for insurer Pinnacle Life, says spokeswoman Jane Barron.
“We were well aware of the requirements of the new regime, having obtained our transitional license in early 2020,” she says.
“We had a plan, we stuck to it…(and) the change gave us the impetus to examine our operations and make changes where required to ensure we continue to deliver good customer outcomes.”
Summerfield is cautiously optimistic about how the new regime will play out long term.
“In terms of future challenges, there are two I would call out,” he says.
“The first is full licensing, although anecdotal feedback I've seen from the few people who have already obtained their full licence is that it's not as difficult as they expected.
“The second is the pending conduct regime. That won't directly affect advisers but could have a significant indirect impact as insurers they deal with implement fair conduct programmes.
“It's too soon to quantify the exact impact as MBIE is currently consulting on changes to the Bill which would alter the efforts FAPs need to go to in overseeing advisers.”
