Conduct obligations regarding RWT
All financial advisers collect sufficient client information to enable them to provide appropriate recommendations. Collecting this information comes with conduct and compliance obligations relating to protecting the privacy of the data, and how you use the data to inform your decision making and educate the client. Many client data collection forms/fact finds collect the client RWT (resident withholding tax) rate but what education do we provide to clients regarding their RWT?
Our compliance reviews indicate many advisers simply collect the client RWT rate because the form has a box for doing so. Conduct obligations would suggest that if we collect such information, we should at least:
- Check that the rate is correct for the income earned; and
- Ask clients if they understand RWT and if not, provide a helpful explanatory handout or provide an explanatory link in the statement of advice.
The Inland Revenue Department has issued new guidance on RWT for interest and dividends from bank accounts and investments.
From April 1st, 2020, clients will be hit with a whopping 45% "non-declaration rate" on interest and dividends if they fail to give the interest payer their IRD number. If clients provide their IRD number but forget to choose an RWT rate, they will be charged a default rate of 33%.
These new penalties increase your conduct obligations. We recommend you advise your clients to:
- Check with their banks and investment providers to ensure they have the client’s IRD number, RWT rate, and check that the rate is correct; and
- As part of the annual review process, double-check clients have passed this key information to the relevant parties.
Within your business, ensure:
- Staff are aware of these new penalties and have processes in place to ask clients to check their RWT rate;
- Client forms are checked to ensure correct RWT rate is recorded; and
- You have educational material explaining RWT and other taxes and, where appropriate, mention the implications of RWT in statements of advice.