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Brief Counsel

Unsolicited call treatment in Financial Markets Conduct Bill better, but still not ideal

21 September 2012

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​Authorised Financial Advisers (AFAs) and Qualifying Financial Entities (QFE) advisers will be able to market financial products without restriction when acting in the “ordinary course of their business” under a change to the Financial Markets Conduct Bill (the Bill).

The relief removes an unnecessary constraint in the Bill, and it is pleasing the Select Committee moved on this point.  But it could have gone further in our view and allowed all advisers to market simple (category 2) products through unsolicited calls or in-person marketing. 

As initially drafted, the Bill banned unsolicited calls or in-person approaches to promote financial products by AFAs and QFE advisers except when made to existing or former clients.  Unsolicited calls or in-person approaches to potential new clients were prohibited.
This prohibition has now been removed for AFAs and QFE advisers when acting in “the ordinary course of business”. 
No relief is available, however, for promotions of financial products by other advisers.  Telemarketing, stall offerings and any other unsolicited in-person approaches by anyone other than an AFA or QFE adviser to promote a retail financial product is still prohibited. 
In this context, financial products include KiwiSaver, other managed investment funds, insurance policies with a savings element, shares, simple debt products and bonus bonds. A key exception is marketing of pure risk insurance, unless the Government includes it by regulation.
The new approach will provide a further incentive for adviser networks to become QFEs and for advisers to become AFAs.  It will also curb some of the aggressive marketing by unqualified advisers of KiwiSaver products which has been reported in the media - such as approaching beneficiaries after they receive their benefit, marketing in malls and approaching people in their homes.

Restrict unsolicited promotion of complex products only   

We suggest though that the restriction should apply only to the more complex category 1 products, so that registered advisers (RFAs) who are not AFAs or QFE advisers can continue to promote the simpler category 2 products to the general public. These are products RFAs are permitted to give advice on, without being AFAs or QFE advisers.
Currently under section 26A of the Bill, RFAs will need to become AFAs or QFE advisers if they wish to contact potential customers by phone on in person and suggest the customers:
  • consider placing amounts held on call into a term deposit
  • consider taking up a bonus bond
  • deposit an amount into a call bank account
  • opt for a unit in a cash or term PIE account (in preference to a call or term deposit because of the tax advantages), or
  • take up a call building society or credit union share.
Arguably this sort of unsolicited advice can be helpful to investors and there may also be a benefit in discussing these simple ideas in terms of general financial literacy.
The restriction on promoting these products may even cause some difficulty for banks assisting their customers with simple informed investment decisions because, even though their employees are QFE advisers, often they will not be acting “in the ordinary course of business as a financial adviser” when giving this sort of simple advice.
Credit unions and building societies could also be adversely affected by the restrictions imposed in section 26A on marketing their simple products to new and existing customers.

The solution

Two remedies are available:
  • either amend Section 26A so that it applies only to category 1 products (such as shares, KiwiSaver schemes, unit trusts, derivatives etc), or
  • pass regulations to permit unsolicited calls or in-person meetings in relation to simple products by RFAs, or QFE advisers (when they are not acting as financial advisers).
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