People who rely on professional financial advice come out ahead of those who don’t, according to recent research by the Financial Services Council (FSC) “Unlocking the Potential of Financial Advice”.
Not only does it help to protect and build wealth, but it’s also been shown to boost confidence, peace of mind, and offer a sense of control – something in high demand after a year of some of the most difficult economic conditions in modern history. Overall, Kiwis who receive financial advice report enjoying greater peace of mind, greater control over their financial situation, and greater confidence in making financial decisions. Moreover, previous research commissioned by the FSC shows that financial advice tangibly improves financial stability, and boosts financial returns significantly.
Despite this, less than 20% of Kiwis use financial advisers. Worse, many are unaware of the benefits that that advice offers. In a separate 2020 study by the FSC, Money & You, 40% of respondents expressed the belief that they could gain nothing from financial advice. This suggests that most Kiwis don’t understand and lack confidence in the value of financial advice. In light of this, the government has taken steps to better regulate and promote transparency in the sector.
The Financial Services Legislation Amendment Act (FSLAA), which came into force on March 15, aims to do just that. It not only works to protect client interests, but overhauls the entire regulatory environment surrounding the financial advice industry to improve transparency, clarify the legal responsibilities of advisers, and make advice more accessible.
Building a secure future for individuals and businesses
The COVID-19 pandemic has made the issue of financial security and stability a priority for investors and businesses. Both the immediate and long-term impacts on global trade have affected almost everyone directly or indirectly, and managing these impacts has been key to their financial security. The financial advice sector has proven essential in this, with 70 per cent of the professional financial advisers surveyed by the FSC indicating that their clients were more financially resilient as a result of their work.
In light of the ongoing crisis, financial advice is more important today than ever. By providing the expertise needed to adapt to changing policies and conditions, it can make investors and businesses more resilient during difficult times, and more profitable in good times. Critically, it also encourages prudent investment, as well as greater and more confident participation in financial markets. This, in turn, helps to protect the overall economy and helps to drive recovery. The FSLAA is designed to further improve the quality of financial advice and to update regulations to reflect the contemporary needs of customers at a critical time.
What the FSLAA means for advisers and clients
The FSLAA transforms the regulatory regime for financial advice from the ground up. It not only clarifies the definition for financial advice, but also provides new classifications for financial service providers, changes to existing financial services, new standards of competence and a professional code of conduct, new requirements to protect client interests, the removal of the distinctions between class and personalised advice, and new requirements for registration on the Financial Service Providers Register (FSPR).
The advisers surveyed expressed particular confidence in the changes and the new code of conduct to ensure that client interests come first with 70% and 70.5% respectively indicating that these would benefit their customers.
Two of the changes are explicitly designed to ensure that advisers prioritise their client’s interests and that they meet standards of competence, knowledge and skill. Additionally, they’re designed to promote confidence and trust in both financial advisers themselves, and the quality of the advice they give.
Advisers face an increased regulatory burden
Nearly all (91%) of financial advisers indicate that they are well prepared to operate in the new regulatory regime, but a large majority also consider it the most challenging environment they’ve ever worked in. In order to remain compliant, 60% of financial advisers indicated that they would need to review their professional financial advice documentation and record-keeping, while half need to adjust their processes, change disclosure policies, improve documentation, or review their compliance programme.
Overall, this new legislation means more and better regulated professional financial advice for more customers. This is expected to boost confidence and drive greater participation in financial markets, benefitting both them and the economy as a whole. Due to FSLAA, Kiwis can expect to be better equipped to invest effectively and to become more financially secure. If you’d like to learn more about how our advisers at Trustees Executors can help you achieve your financial goals, don’t hesitate to talk to one of our Financial Advisers today.
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