Although officially a consultation draft, Strategi believes it is unlikely to undergo a significant rewrite prior to final release. This document has been a long time coming. It is clear that the FMA has thought through the issues; they have some very precise examples; it is one of the longest guidance notes they have produced and the consultation period is relatively short.
What’s so special about this particular guidance note? Firstly, the introductory paragraphs and in particular the comment “Many of the general principles may apply to financial products other than KiwiSaver.” A later paragraph goes on to state “Guidance helps market participants to be confident they understand our approach and how we interpret, and intend to apply, the law relating to their responsibilities.” The key takeout from this is that QFEs, product suppliers and advisers need to know the guidelines around KiwiSaver advice and apply those principles to other advice they provide.
Secondly, this guidance note clearly spells out the difference between no advice, class advice, personalised advice and investment planning. This is immensely beneficial for QFEs with call centres and for RFAs who are already, or intend to operate, in the KiwiSaver space. Many RFAs have been avoiding KiwiSaver as they believed they needed to be an AFA. However, the guidance note is clear. RFAs can operate in the KiwiSaver space but only if they are providing class advice or are a QFE adviser and providing personalised advice on a product promoted by the QFE. Provided an RFA knows and follows those class advice rules, then they will be OK. However, a prudent RFA providing KiwiSaver class advice will quickly realise that they will make more money and build better client relationships if they move to AFA status and can provide an increased level of ‘value add’ to clients.
Thirdly, not all operators are going to like this guidance note. Paragraphs 52-54 outline the FMA’s expectations of product provider responsibilities. These may be a little ambiguous but the spirit behind what the FMA is trying to achieve is pretty clear. There is a responsibility for the product provider to be satisfied that the client is aware of what they have signed up to and has been properly informed. The provider is expected to have knowledge of the adviser’s sales practices and any assurance that the adviser is compliant. Further there is an expectation that the product supplier will provide training and take action if aware an adviser may not be compliant.
Finally, Strategi believes KiwiSaver is a financial juggernaut and has the potential to change the financial services industry over time. As such, it has a special place in the mind of the FMA and it will be extremely diligent around how it is sold and how clients are serviced. Advisers need to embrace KiwiSaver advice but in doing so, have the requisite competency standards, systems, and advice process to ensure they are compliant at all times. This draft guidance note will assist advisers to do that.