Leading Auckland-based law firm Russell McVeagh has published tips for financial advisers looking to develop digital advice platforms and rely on the Financial Market Authority’s (
FMA) exemption under the Financial Advisers Act (FAA).
Russell McVeagh’s corporate advisory group head
Dan Jones said the exemption is a necessary first step in putting the New Zealand financial advice industry on an equal footing with overseas industries, and may provide particular assistance to KiwiSaver.
“A small number of providers have indicated readiness to launch digital advice solutions under the exemption, yet the timing and infrastructure costs could mean that enthusiasm is limited,” Jones said.
Russell McVeagh highlighted key areas for providers to consider before relying on the exemption, including: the commercial viability of digital advice, the application process (applying to the FMA to rely on the exemption), and considering the timing of the exemption in the context of wider law reform.
“The two main barriers for customers currently obtaining financial advice under the traditional human adviser model are the cost of financial advice and the minimum amount of investable assets typically required,” said senior associate Joanna Kho. “Globally, the rise of digital advice has been a significant step toward reducing this advice gap by generating a low-cost solution suitable to a broad range of customers.
“While digital advice is already well developed in the US, UK, Australia, Singapore and Europe, New Zealand has been slow off the blocks. At about the time the Financial Advisers’ Act 2008 (FAA) came into force here, firms in the US were already launching their first digital advice platforms,” Khoo added.
Digital advice may help KiwiSaver investors who collectively have investment assets of more than $40 billion. Currently, less than 0.3% of all new KiwiSaver accounts or transfers receive personalised financial advice, Khoo noted.
The FMA used its exemption powers in October to grant an exemption to the FAA which currently states that only “a natural person” can give financial advice. The exemption will override this and allow digital advice to be granted via digital platforms as long as the adviser, or the organisation, applies to the FMA for a license.
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