Greater regulation of the New Zealand financial industry is here at last. So what does this mean for consumers?

For a long time our financial industry has been woefully under-regulated. This can be seen in the embarrassing D-rating New Zealand received in Morningstar's latest global survey of managed funds – we came last of the 24 countries surveyed. Shockingly poor levels of advice and analysis were revealed in Consumer’s 2009 mystery shop of financial advisers. Add to this an estimated $3 billion lost in finance company collapses and it's not surprising that Kiwis lack confidence in the local investment industry.

The new regulatory regime is intended to lift professional standards across the industry and to rebuild public confidence. From now on:

• All financial service providers must be listed on the Financial Service Providers Register (FSPR).
• All advisers must belong to a dispute resolution scheme.
• Advisers must operate by the Code of Professional Conduct for Authorised Financial Advisers. The code sets standards for disclosure, competence, continued training, and accountability.

These regulations will provide some improved protection for consumers. It will be easy for you to identify whether an adviser is registered because the FSPR is available online for free. You can now go to independent dispute resolution if you have a problem that can't be resolved with the adviser or their company. Penalties can be severe, ranging from a $5000 fine for an unregistered provider of financial advice to a $100,000 fine for a person who deliberately misleads or deceives a client.

Financial product categories

Under the new regime there are two categories of financial product: Category One covers more complex investments including shares, securities of all kinds, land-investment products and futures contracts; Category Two is for less complex investments and covers savings products such as term deposits, bonus bonds, and options on building society and credit union shares.

These categories mean there are now three types of advisers:

• Authorised Financial Advisers (AFAs). They must be authorised (that is, licensed) by the Securities Commission and can advise on Category One and Category Two products.
• Registered Financial Advisers (RFAs). This type of adviser can advise on Category Two products only. They must be registered but don’t need to be authorised by the Securities Commission.
• Qualified Financial Entities (QFEs). The advisers working for a QFE do not need to be individually registered or authorised as long as they only provide advice on the QFE's own products. Within this restriction they can advise on both Categories One and Two. It is the QFE's responsibility to make sure its advisers meet the required competency standards and adhere to the code of conduct.

It's difficult to know what impact these new regulations will have on the industry and its customers. We will be monitoring their success or otherwise with interest.

More from consumer.org.nz

• Financial advisers - our November 2009 mystery shop
• Financial advisers' reform - in April 2010 we looked at the proposed industry reforms

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