Most Read Contributor in New Zealand, September 2016
Authorised Financial Advisers (AFAs) and
Qualifying Financial Entities (QFE) advisers will be able
to market financial products without restriction when acting in the
"ordinary course of their business" under a change to the
Financial Markets Conduct Bill (the Bill).
The relief removes an unnecessary constraint in the
Bill, and it is pleasing the Select Committee moved on this point.
But it could have gone further in our view and allowed all advisers
to market simple (category 2) products through unsolicited calls or
As initially drafted, the Bill banned unsolicited calls or
in-person approaches to promote financial products by AFAs and QFE
advisers except when made to existing or former clients.
Unsolicited calls or in-person approaches to potential new clients
This prohibition has now been removed for AFAs and QFE advisers
when acting in "the ordinary course of business".
No relief is available, however, for promotions of financial
products by other advisers. Telemarketing, stall offerings and any
other unsolicited in-person approaches by anyone other than an AFA
or QFE adviser to promote a retail financial product is still
In this context, financial products include KiwiSaver, other
managed investment funds, insurance policies with a savings
element, shares, simple debt products and bonus bonds. A key
exception is marketing of pure risk insurance, unless the
Government includes it by regulation.
The new approach will provide a further incentive for adviser
networks to become QFEs and for advisers to become AFAs. It will
also curb some of the aggressive marketing by unqualified advisers
of KiwiSaver products which has been reported in the media - such
as approaching beneficiaries after they receive their benefit,
marketing in malls and approaching people in their homes.
Restrict unsolicited promotion of complex products only
We suggest though that the restriction should apply only to the
more complex category 1 products, so that registered advisers
(RFAs) who are not AFAs or QFE advisers can continue to
promote the simpler category 2 products to the general public.
These are products RFAs are permitted to give advice on, without
being AFAs or QFE advisers.
Currently under section 26A of the Bill, RFAs will need to
become AFAs or QFE advisers if they wish to contact potential
customers by phone on in person and suggest the customers:
consider placing amounts held on call into a term deposit
consider taking up a bonus bond
deposit an amount into a call bank account
opt for a unit in a cash or term PIE account (in preference to
a call or term deposit because of the tax advantages), or
take up a call building society or credit union share.
Arguably this sort of unsolicited advice can be helpful to
investors and there may also be a benefit in discussing these
simple ideas in terms of general financial literacy.
The restriction on promoting these products may even cause some
difficulty for banks assisting their customers with simple informed
investment decisions because, even though their employees are QFE
advisers, often they will not be acting "in the ordinary
course of business as a financial adviser" when giving this
sort of simple advice.
Credit unions and building societies could also be adversely
affected by the restrictions imposed in section 26A on marketing
their simple products to new and existing customers.
Two remedies are available:
either amend Section 26A so that it applies only to category 1
products (such as shares, KiwiSaver schemes, unit trusts,
derivatives etc), or
pass regulations to permit unsolicited calls or in-person
meetings in relation to simple products by RFAs, or QFE advisers
(when they are not acting as financial advisers).
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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