Managing director of Cave Financial talks about upcoming legislation changes, and what they will mean for financial advisers
Tougher disclosure rules will cause some pain for Registered Financial Advisers (RFAs) in the short term, but according to Cave Financial managing director Michael Cave, they will ultimately benefit the financial sector in the long run.
The last major compliance overhaul took the shape of the Financial Advisers Act of 2008, which was introduced following the global financial crisis and aimed to 'encourage public confidence in the professionalism and integrity of financial advisers and brokers.’ Authorised Financial Advisers (AFAs) are already accustomed to operating within a more regulated environment where full disclosure of commissions and performance incentives is expected; according to Cave, biggest change will now be felt by RFAs operating in the life insurance and mortgage spaces, which were not part of the stringent disclosure rules set in 2008.
“When it comes to telling clients exactly how and when we get paid, us investment guys have been doing that for a decade,” says Cave. “However it’s time those rules applied to all advisers, which will help deliver consistency across the sector. It will also force a bit more self-accountability as disclosure becomes a bigger part of the RFA’s client meetings.”
According to Cave, New Zealand currently suffers from poor financial literacy and low savings, is under-insured in the life space, and over-mortgaged when it comes to property. The changes introduced by the Financial Services Legislation Amendment Bill should raise people’s confidence when it comes to understanding financial markets and seeking guidance from advisers.
“Too few New Zealanders seek financial advice despite all that’s at stake when they’re making big decisions,” says Cave. “These measures will hopefully help change that and provide the last piece of the puzzle in our industry professionalism, help strengthen our capital markets and offer consumers more information.”
Cave also says there is no need for an investigation to the scale of the Royal Commission which is currently happening in Australia, and agrees with Reserve Bank governor Adrian Orr who claims that New Zealand’s banking sector does not need a total overhaul, but rather several smaller-scale regulatory updates.
“Regardless of where the legislation lands, it will certainly be a period of change with some advisers disappearing and others reappearing under another banner,” says Cave. “It is important the changes achieve the right balance, particularly when it comes to the likes of the many smaller advisers who do a great job in our rural areas, towns and cities. No one wants to be strangled by red tape and pushed out of business.”
