The Ministry of Economic Development has issued a discussion paper on proposed regulations under the Financial Advisers Act 2008 which will prescribe the content and form of disclosure by financial advisers. Submissions are due by 5.30pm on Wednesday, 12 August 2009.
There are some important proposals to consider, including the different disclosure requirements for authorised financial advisers, category 2 product advisers and QFEs.
General requirements for all financial advisers
To facilitate comparison, it is proposed that only prescribed content be included in disclosure statements.
The Ministry has proposed that the following general content should be permitted in the disclosure statement for all three categories of adviser:
- Contact details of the adviser
- A guiding statement with mandated wording
- The status of the adviser and the services they can provide
- Complaint and dispute resolution arrangements
- Contact details of the Securities Commission, and details of its role.
In addition to the general content, the Ministry has considered further specific requirements for the different categories of advisers. The specific requirements for each class of adviser are detailed below.
Requirements for authorised financial advisers
It is proposed that authorised financial advisers must disclose:
- That they are an authorised financial advisor
- The services they can offer (from a prescribed list) and any limitations to providing those services
- Other information such as material interests, relationships or associations
- Any adverse disciplinary action by the code committee (expected to be formed before the end of this month) that has been imposed on the adviser within the previous 5 years of a service being performed
- Their fees, other remuneration or incentives. The Ministry has proposed three different options, and has invited submissions as to which is preferred. The options are:
- disclose the maximum commission/fee that the adviser and its associated organisation could receive as a single figure; or
- state the possible ways in which the adviser is remunerated but not the amount; or
- state the services they can provide and the maximum fee/commission associated with each type of product offered, and any other potential fees that are not directly related to a specific product under a separate heading.
An adviser does not need to disclose any criminal convictions or adverse findings on them by a Court or the Securities Commission; however the Securities Commission may require them to disclose this matter as part of the adviser's terms and conditions of authorisation.
The Ministry also seeks response as to whether there is a need to consider different disclosure requirements for a certain class of authorised financial adviser, financial adviser service, or client.
Requirements for category 2 product advisers
For category 2 product advisers (ie those providing advice regarding limited products including call debt, most insurance products and bank term deposits), the Ministry seeks suggestions as to the most appropriate form of disclosing their status as a category 2 product adviser. The Ministry has suggested category 2 product advisers:
- disclose the extent of advice they can provide; and
- provide optional further disclosure (ie matters required to be disclosed by authorised financial advisers).
Requirements for QFEs
The Ministry proposes that QFEs disclose:
- matters required to be disclosed by the QFE's terms and conditions of authorisation; and
- any other licensed service offered.
Note that the Ministry is not prescribing how the disclosure should be communicated. Therefore QFEs need to consider how they will discharge their disclosure obligations.
The Ministry has asked for industry views as to whether the legislation provides sufficient flexibility to ensure disclosure can be made after performing the service where it is not practicable to give disclosure beforehand (in particular in the case of telephone advice), and seeks examples of instances where problems may occur, and any potential solutions.
The Ministry emphasised in the discussion paper its desire to receive practical industry feedback on all of the proposals. This is your opportunity to ensure your key issues are addressed and an opportunity to help shape the future in respect of the regulation and supervision of financial advisers.
We are well positioned to assist you in making a submission and to advise you on the effects the proposed disclosure regime has on your business. Our specialist Financial Services team members look forward to assisting you.
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