Heidi Norman
Kia ora and welcome to 5 minutes with the FMA. I'm Heidi Norman. Today we're talking about the Financial Market Authorities, access to financial advice review. And I'm joined by the FMA's head of Financial Advice, Romil Galani. Welcome, Romil. What's the background to this review? How did it get started?
Romil Ghelani
Thank you, Heidi. So if I start from the very beginning, the regulatory framework for financial advice began in March 2021 with a 2 year transitional period for getting firms licenced to give advice and then came into full effect in March 2023. So 2 of the additional purposes of the regulations. Was to ensure the availability of financial advice and the quality of financial advice. And so these two things, the availability and quality are really the cornerstones of the regulatory regime for financial advice, and our view is that quality and accessibility of advice are both complementary, but can also have trade-offs. And so we've always considered the availability of financial advice in a sense when setting our licence, standard conditions when publishing. Guidance to financial advisors over the past few years and maybe in our monitoring reviews and examinations, but now is the time to further enhance our understanding of the availability of financial advice for New Zealanders, including where consumers go to get advice in order to inform our work as a conduct regulator. So our focus of this review is really on the challenges and opportunities related to accessing financial advice.
And one thing I'll mention is that in my many conversations I've had with advisors in my regulatory role. They all want to give more financial advice. Would certainly be surprising to anyone. You become a financial advisor to give advice and to help people, and this review has that ethos front and centre. So part of this is really about how regulation continues to uplift and underpin the prosperity of the industry. And that is why you want to bring the industry along the journey with us. That is why we're seeking feedback before we commence this work.
Heidi Norman
And what is it exactly that you're seeking feedback on?
Romil Ghelani
Yeah, thanks. There's two key areas we're seeking feedback on. One is we'd like to know what people think of the four focus areas that we've chosen and the proposed terms of reference. So the question is, do we have those topics right? And #2 is, are there any sources of information that advisors or the wider Ecosystem can provide us. In terms of giving us insight into the challenges and opportunities for the availability of financial advice, because any observations we draw needs to be based on good information and a key part of that is making sure we're asking the right questions and talking to the right people before we commence the next phase of the review, which is what I'm calling The field work phase.
Heidi Norman
So can we define some of the terms here? What do we mean when we say availability and access to financial advice?
Romil Ghelani
So when we talk about availability and access, we broadly mean the availability of regulated financial advice. So that's those that are licenced and qualified. To give advice under the financial Markets Conduct Act and that that advice is accessible to New Zealand consumers. However, as part of this review, in order to understand that we need to get a broader view of what consumers may consider advice and look at other sources of information that people may use to make financial decisions about their well-being. So this can include things like social media, friends and family. And other organisations that may not hold the FAP licence.
Heidi Norman
And tell me more about the focus areas that you're looking for Feedback on. The first one is listed as consumer demographics and preferences. What is it that you're looking for here?
Romil Ghelani
Yeah. So seeking financial advice can feel quite daunting to many Kiwis. And so the first proposed topic of this review is understanding some of the behaviours, the behaviours that may propel people to seek advice. And maybe the behaviours that act as a barrier to seeking advice as well, because on the other end of this is about seeing what we can do to demystify advice for consumers and build their confidence in the relevance of having a financial advisor in their lives. It's particularly important that all keys can access simple and affordable advice about everyday products such as KiwiSaver. So we also want to explore the perception that financial advice is only helpful for those who invest in complicated products or have a large sum to invest. We also want to understand in this topic what demographic factors might influence the desire and ability to access regular financial advice, which may also include groups of consumers who may be experiencing barriers. Affordability or financial literacy as well.
Heidi Norman
And you list innovation and digital advice as areas of focus. Why is that?
Romil Ghelani
Yeah. So that's the second proposed topic. So one of the changes brought about by the financial advice reforms was allowing the advice to be provided through digital advice services. Whereas previously before the reforms, it can only be provided by natural person. And this is to promote innovation and flexibility, which is one additional purpose under the financial markets conduct act and our regulatory returns, which is a return that we ask all financial advice providers to complete every year, shows that only 3% of licenced FAP’s actually provided Digi advice service. And so for us it's exploring innovation in the financial advice industry, including exploring why innovation maybe so subdued because we think more innovation in the financial device sector will help increase access to advice.
Heidi Norman
OK. And I can see that financial advice business models is included here as well. What are you hoping to find out there?
Romil Ghelani
Yeah. So we would like to understand how different financial advice business models or in other words, the different channels in which advice can be given and the revenue models that come with that may impact access to financial advice. And part of this will actually be tapping into some of the smaller players and the new firms entering the industry. To find out their experiences entering and ending barriers that they may have experienced at the same time to cover business models more generally. Understanding business models is really important as a risk based conduct regulator and so our review. of FAP business models is really going to understand access but also help us understand risks to conduct, to client care and to revise quality.
Heidi Norman
And lastly, I can see here that you've listed ease of provision of regulated financial advice. How does that look to you?
Romil Ghelani
Yeah. So ease of provision, all ease of provision really means for the audience is how regulation plays a role in increasing access. So all the previous three topics was about the consumer lens, innovation and business models. Ease of provision is really FMA's bread and butter and the principles-based nature of the financial advice regulatory regime means that advisors are able to offer a wide range of services. And that advisors have flexibility in deciding how they want to go about compliance. But what we're seeing in the market is still some instances where advisors are unsure about how to meet their regulatory obligations and the flexibility is quite useful. But it can also create some uncertainty as well. And this includes the removal of a couple of alternates before the forms came into effect, which is classed versus personalised advice. And so we're going to explore those issues through the ease of provision, including seeing where highly conservative compliance practises may be acting as a barrier to giving advice. And the output of all this in the last proposed topic is we most likely foresee additional guidance being given on where there might be some areas of uncertainty where we can provide advisors more confidence. And what services they're able to provide, including simplified advice.
Heidi Norman
Mm-hmm. OK, that sounds really great. If people want more information, where can they go?
Romil Ghelani
Yeah, so do read the full terms of reference. It's only 5 pages long. It's on our website at www.fma.govt.nz. Please do send in your thoughts. We welcome all feedback. We have a dedicated channel on our website for you to send us that feedback and we're very keen to hear it from all of you and from a wide range of people. So thank you.
Heidi Norman
Thanks so much for your time today Romil, much appreciated. And that's all we've got time for today on 5 minutes with the FMA see you next time.
