KiwiSaver advice maintained
The rule-making body for financial advisers has dropped a proposal to lower the bar for people giving out KiwiSaver advice after a flood of worried feedback.
The Code Committee for Financial Advisers had mooted a special KiwiSaver training track in an effort to encourage more professionals to help people pick the best KiwiSaver fund.
A tweak to the 2010 code would have allowed authorised advisers to dispense KiwiSaver advice without necessarily sitting full investment planning qualifications.
But a new draft version of the Code of Professional Conduct for Authorised Financial Advisers, released today, scrapped the carveout in favour of a much more limited exemption for withdrawing KiwiSaver money to buy a first home.
Chairman David Ireland said submissions went both ways, but the weight of feedback convinced the committee the plan was too risky.
KiwiSaver products might grow more complex and people's balances would certainly rise.
Future KiwiSavers would need full investment planning advice when they reached retirement with increasingly big nest eggs, he said.
Opponents to the plan had argued "we shouldn't treat it [KiwiSaver] as a product requiring limited investment knowledge".
"While it was good to increase the accessibility of advice, for many people this will be their only or most significant investment, and balances could be quite significant, so it is even more important."
Ireland acknowledged it was unclear whether mortgage brokers and other lower-tier advisers would bother getting special authorisation just so they could advise on first-home withdrawals.
Plans to boost professional development hours and make it crystal clear that the clients' interests must come first remain in the draft.
Advisers have also been given a get-out-of-jail clause exempting them from having to fully analyse investments if a client specifically asks them to carry out a finite transaction, for example buying shares in a particular company.
Financial advisers will have to better disclose their conflicts of interest under proposed changes.
However, there are no plans to follow Australia and ban them from working on commission.
The committee has said banning commissions is outside its powers and Commerce Minister Craig Foss has said the impact of commissions will not be considered until the law is reviewed in 2016.
Other proposed changes to the code require advisers to identify and clearly communicate any conflicts of interests, including commissions.
The penalty for breaching the financial adviser's code of conduct is a fine of up to $10,000 and deregistration.
The committee and regulator, the Financial Markets Authority, hoped to boost the number of professionals advising people on KiwiSaver after new rules restricting financial advice and KiwiSaver sales limited the ability of lower-qualified people to talk to investors about the scheme.
Under the Financial Advisers Act, only authorised financial advisers and staff advisers working for qualified financial entities (including banks) can provide fully personalised financial advice on investment products such as KiwiSaver, and they must use due skill, care and diligence.
Other parts of the new rules would tighten qualification requirements for advisers offering discretionary investment management services, a service which allows them to buy and sell investments without going back to the client each time. It was the structure employed by alleged Ponzi operator David Ross.
Final comments are due by October 24, then the final version of the code must be approved by the Financial Markets Authority and, later, the commerce minister.
It is expected to take effect in early-to mid-2014.
- © Fairfax NZ News