New financial advice regime changes

In April 2019, the Government passed a new law changing the rules for how financial advice is provided to retail clients.
As part of the changes, the Government is removing the three current adviser types – Registered Financial Adviser, Authorised Financial Adviser and QFE adviser – and all advisers will need to meet the same standards.
From 29 June 2020, if you plan to provide financial advice to retail clients on your own behalf (or if you want others to provide advice to retail clients on your behalf), you will need a financial advice provider’s licence.
If you plan to provide advice on behalf of another financial advice provider, you won’t need a licence.
There will be two phases to financial advice provider licensing: transitional and full.
Financial advice providers will initially be able to apply to operate under a transitional licence and will have up to two years to obtain a full licence.

The new regime changes can be summarised as:

Financial Services Legislation Amendment Act

The Act introduces a package of changes to the regulation of financial advice. It sets out the duties that will apply to providers and individuals e.g. persons giving advice must prioritise clients’ interests.

The Act passed into law in April 2019. The new regime for financial advice will come into effect from 29 June 2020.

New Code of Conduct

Anyone providing advice to retail clients is subject to a new Code of Professional Conduct for financial advice services. This outlines the standards of conduct, client care, competence, knowledge, and skill you need to meet when providing financial advice in New Zealand. The Minister of Commerce and Consumer Affairs approved the Code of Conduct in May 2019.

New disclosure requirements

You must disclose certain information to your clients to ensure they are making informed decisions.

Consultation on the draft disclosure regulations closed on 8 November 2019 – keep an eye on MBIE’s website for updates.

New registration requirements

To address misuse of the Financial Service Providers Register (FSPR), you will only be able to register as a financial service provider if you are providing services to New Zealand clients. This is a new requirement, which aims to improve client confidence and protect New Zealand’s good business reputation both at home and abroad.

The Companies Office is making changes to the Financial Service Providers Register (FSPR) to implement the changes to the registration requirement in the new regime.

Standard Conditions

Financial advice provider licences are subject to conditions. From 29 June 2020, all transitional licence-holders will need to comply with these conditions. They include conditions imposed by the FMC Act, the regulations, and any conditions imposed by FMA.

Why changes are happening

The Financial Services Legislation Amendment Act introduces changes to ensure the conduct and client-care obligations of financial service providers and the regulation of financial markets remain fit for purpose. It also addresses misuse of the financial service providers register by offshore entities. The changes are designed to:

remove regulatory boundaries, such as the current adviser classifications (AFA, RFA, and QFE), the distinction between ‘class advice’ and ‘personalised advice’ and category 1 and 2 products
allow financial advice to be provided online as well as in person
set industry-wide standards for conduct and competence

Our role

Parliament is changing how we regulate financial advice in New Zealand. A number of government agencies are involved in this process. Below we outline which areas each of us is responsible for.

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Financial Markets Authority

Provides information on regulatory requirements, like guidance about the licensing application process
Assesses and issues licences for financial advice providers
Collects data, and monitors compliance and outcomes through ongoing supervision
Takes enforcement action when needed.

Ministry of Business, Innovation and Employment

Responsible for monitoring and evaluating the performance of the Financial Advisers Act and the Financial Service Providers Act
Carried out the review of the above acts
Recommended legislative changes to government
Considers and recommends regulations containing technical details to support the legislation. This includes:

the disclosure requirements for those providing financial advice, and
setting fees and ongoing levies.

NZ Companies office

Registers relevant firms and individuals on the Financial Service Providers Register (FSPR.)

Code Working Group

An independent group appointed by the Minister of Commerce and Consumer Affairs to prepare the code of conduct. This sets out minimum standards of:

competence, knowledge, and skills
ethical behaviour and client care

Once approved by the Minister, and when the new regime comes into effect, the new code will replace the existing code of conduct, made under the Financial Advisers Act.

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