The Financial Advisers Act review's issues paper was released today, seeking feedback on a broad range of topics.

Commerce Minister Paul Goldsmith said some of the key questions included whether consumers understood adviser regulation and whether it had unduly reduced access to advice.

The issues paper says regulation is necessary because consumers might otherwise find it hard to determine the quality of advisers. Bad advice was sometimes only evident in the event of a market correction and could leave people worse off than no advice at all.

But the paper identifies a number of issues with regulation as it stands at present.

“We have heard that the regulatory framework is too complex for consumers. Consumers have noted that it is difficult to understand differences between classes of advisers, their different obligations, and their ability to advise on different products and give different types of advice. This may be undermining consumers’ ability to make informed decisions about which type of adviser to use and how to interpret their advice, and may discourage some from seeking advice altogether," it said.

It looks at whether the distinction between personalised and class advice is effective and says consumers seem not to understand the differences between the types of adviser.

It asks whether activity that could be more accurately described as sales should come under the umbrella of financial advice at all. “The FA Act may give consumers an inaccurate impression about the extent to which the ‘adviser’ is their agent and is acting in their best interests.”

It asks whether commission should be restricted or banned, notes that other countries are cracking down on this remuneration model, and says commission can create conflicts of interest. “The existence of commissions may also create a perception that advisers are less trustworthy and do not have consumers’ best interests at heart. This can have the flow-on effect of damaging public confidence in financial advisers.”

It tackles disclosure requirements and whether they should be extended beyond AFAs, whether a better term is needed for RFAs and whether it is appropriate to have different requirements based on the risk and complexity of the products advised upon.

It considers education standards and asks whether AFA requirements should be higher and whether RFAs should have requirements imposed.

The Code of Conduct for AFAs and the Financial Advisers Disciplinary Committee are also under the spotlight and DIMS gets a mention. The paper asks whether changes should be considered to reduce the costs on advisers who exercise some discretion but are not offering a funds management-type service.

MBIE acknowledges it must keep up with a changing market for financial advice – decumulation from KiwiSaver is likely to prompt a need for more advice and the advent of roboadvice will be a challenge for regulators and existing advice providers.

An options paper will be released later this year and final recommendations given by the middle of next year.