Education and compliance firm Strategi has expressed “serious concern” over the readiness of advisers for the new regime, which is less than a week away from taking effect on March 15.
Despite an overwhelming tone of optimism from regulators, government and the adviser sector itself over the past few months, Strategi executive director David Greenslade says the firm has been getting “heaps” of calls and emails from advisers every day, asking questions that “should have been asked 12 months ago.”
Commenting on the level of preparation, Greenslade said that it is currently “far from ideal” with only a few business days to go, and even more concerningly, he says there is a small group of “active non-compliers and disbelievers” who don’t think the requirements will impact them at all.
Despite this, Greenslade acknowledged that many advisers have put in “the hard yards” to be ready in time, but says it is increasingly looking like this group is in the minority - possibly as small as 30% of the advice sector.
“In our view, the vast majority have just been too busy to focus on getting ready for March 15. They have had a bumper year with clients pouring in - clients want to invest money, obtain mortgages, buy insurance, etc. Almost every adviser we talk to has reported unprecedented levels of new business,” Greenslade said.
“They want to do the right thing by their clients and comply with the law, but are struggling to do both at once. As a result, they have made the commercial decision to make money while the sun shines and then turn their attention to the compliance stuff once the FMA starts to flex its muscles.”
Greenslade says he believes that around 70% of the industry is struggling with at least one or more of the requirements. These include understanding and complying with the legislation, disclosing remuneration and conflicts of interest, and getting the required education standards.
Strategi CEO Daniel Relf said the warning signs started showing around Christmas, with advisers showing signs of weariness, and a reluctance to pick regime preparation back up in the new year.
“We sensed it around Christmas 2020 when we saw advisers taking a well-earned break after a hectic and COVID-stressed year,” he told Insurance Business.
“The message coming to us loud and clear was we are ‘worn out and will address compliance when we return in the new year’. The new year for some of these advisers was late January, and starting the process that late has meant they have run out of time.”
“Since the beginning of January, we’ve seen a significant increase in the volume of enquiries from companies who have applied for their transitional licence and are only now realising their compliance obligations,” he added.
“The financial advice providers who have invested resources into becoming compliant will be fine. Those who have been way more relaxed in their approach will enter the new advice regime underprepared and non-compliant with the legislation, regulation and code.
“There will also be a number of financial advisers on day one who may not be operating under a FAP and will need to quickly scramble to join one.”
Relf said he was expecting some advisers to drop out of the industry, and to see further consolidation over time.
The comments come days before advisers are due to transition into the new regime, despite positive commentary from MBIE and the regulators over the past several months, both of which have commended advisers for their efforts in overhauling their businesses and obtaining transitional licenses.
Commenting on her outlook for the financial adviser sector several weeks ago, MBIE manager financial markets Sharon Corbett said she felt “great optimism” for this space, and said the aim of the new regime was to inspire confidence in consumers.
“When I look ahead and I think about the financial advice sector in the next 5-10 years, I feel great optimism,” Corbett said.
“I know that preparing for this new regime has been an enormous undertaking with so many different elements to think about in terms of changes to adviser businesses. It assures consumers that advisers need to prioritise their interests, comply with the Code of Conduct and operate under a license granted by the FMA.”
“What I like is that from March 15, the message to the public will be very clear and simple,” she added.
“Everyone giving advice is held to the same standards. Gone are those mind-boggling permutations of different standards depending on who you go to for advice, what product they are advising on, and whether or not your personal circumstances are being taken into account. This has the potential to improve the wellbeing of so many New Zealanders, and I hope that, in turn, that will contribute to a thriving financial advice sector.”
