Financial Advisers Act 2008: Disclosure Regulations

1. The Capital Market Development Taskforce welcomes this discussion paper and agrees with many of the proposals included. We would like to comment on several of the issues raised.

2. Firstly, although this issue was not specifically raised in the discussion paper, we consider that it is important to reinforce and define the fiduciary duty of care between an adviser and their client. This duty, and the rights of redress that it entitles the client to, should be made explicit in the legislation. Although a fiduciary duty already arises in an adviser/client relationship, the fact of it is not currently clear, largely because of the broad use of the word "adviser". With regard to disclosure, the duty imposed should restrict advisers from entering into any arrangement that benefits them to the potential detriment of their client without having first declared that to the client and given them the opportunity to withdraw.

Question 2 and 3: Guiding statement

3. A guiding statement seems unnecessary because if the mandated headings for each section are questions, the consumer should already be able to easily understand and navigate the document. As raised earlier in the discussion paper, it is important that disclosure documents are concise and easily understood by investors. Including a guiding statement that is superfluous would undermine this. At the most, the guiding statement should comprise a simple and brief sentence explaining the importance and purpose of the disclosure document.

Question 7, Services

4. The taskforce agrees that financial advisers should be required to disclose what products and/or services they can offer and believe that this would be done most effectively by picking from a prescribed list. Furthermore, it is important that the document clearly shows which items on the list the adviser does not offer, so that investors can more fully understand the implications of any limitations.

Question 8, Remuneration

5. The paper proposes three options for the disclosure of remuneration and other incentives. The taskforce prefers the option of requiring financial advisers to indicate from a prescribed list the services and/or products that they can provide and the maximum fee or commission associated with each. This is the most transparent approach and is likely to be more easily understood by investors.

6. Question 8d asks whether the words "independent" or "unaligned" should be restricted to only those advisers that do not receive commission payments from issuers. It is further suggested that consideration could be given to requiring advisers to disclose whether they are "independent" or "unaligned" in a mandated statement. We agree with the restricted use of these words, and also that a mandated statement should be required.

7. We believe that restricting the words "independent adviser" is important because they are likely to give consumers the perception that objective advice on a whole range of products is being given, and that this advice is solely in their best interests and not influenced by any other factor. Furthermore, even without an "independent adviser" label, many consumers may have the incorrect perception that all people who give financial advice are acting independently. This is particularly true if they are "authorised financial advisers", or even "registered financial advisers." Restricting the use of these words, and requiring financial advisers to state this up front, should make any lack of (or fact of) independence clear.

8. However, we suggest that the word "independent" would be more effective than "unaligned" as consumers are more likely to have a prior understanding of what this means. We also suggest that the definition be widened to include not only those who do not receive commission payments, but also those who receive no other incentives from providers that are likely to influence them to act in a way that is contradictory to how a consumer would perceive an independent adviser would act (as described above), for example gifts and trips to conferences.

9. We note that the proposals raised in question 7 to require advisers to disclose what products and/or services they can offer, as well as any limitations to these will also help address some the issues raised in paragraph 6 above.

Question 14 – Other classes of authorised financial adviser

10. This question raises the issue of the need to consider different disclosure requirements for certain classes of authorised financial adviser. The taskforce recognises that wholesale investment advisers are one instance where an exemption to, or variation of, the disclosure requirements should be considered.

Rob Cameron
Chair, Capital Market Development Taskforce

This site uses cookies to track and analyse usage.