Thursday 7th of August 2008

So we have yet another change of plans for regulating the financial adviser sector. As we reported yesterday the latest recommendations from the select committee have a couple of key features. The first being a return to the concept of tiered regulation, that is one level for simple products like term deposits, and the other for complex ones. The other key change is that a Commissioner for Financial Advisers be established to work within the Securities Commission. On first glance these ideas look good. Regulating advisers on a product basis makes sense. That way it is pretty clear what who sits where. I am sure there will be some fascinating outcomes such as how does it impact on a mortgage broker who is selling KiwiSaver? I assume KiwiSaver is a complex product (although it is meant to be simple). A concern I have had previously is that the Securities Commission was being put into a regulatory role over a sector it doesn’t appear to have a lot of in-depth experience about. (This is not a criticism of the commission, rather a reflection of the role it plays.) A Commissioner of Financial Advice is a good idea. The caution is that the terms of reference and description of the role need to be absolutely tight. As one person said: “it should be as wide as a very narrow doorway.” The appointment of this role is absolutely critical to the success of this regime. A couple of other points worth noting are that it appears the “accredited institution” idea is still alive. As long as there is an alternative and these institutions have exactly the same rules and standards of the alternative then the industry can, I suspect, live with this. Judging by the feedback to a previous post on this idea there is still some way to go in explaining the set-up and getting buy-in from advisers who don’t wish to be aligned to a particular institution. As a bit of a footnote to this whole saga it has been fascinating to see how things have unfolded. In particular the role the Minister of Commerce, Lianne Dalziel, has played. She has been willing to listen to ideas and get it right. While the process has been long it appears to be reaching a conclusion which is workable. Secondly, she has repeatedly said she wants the changes to happen before the election. A week ago I would have said little chance. Now, it is looking far more likely. Finally Dalziel gets credit for openly acknowledging that the former idea of having APBs was the wrong idea. What is perhaps most interesting, is that the former IFA president has gone on record saying that he always believed the APB model wouldn’t work. As the minister has said: why didn’t he tell her that?