The Financial Advisers (Personalised Digital Advice) Exemption Notice 2018 may allow the financial advisers to provide personalized digital advice services to retail clients. The digital-advice pursuant to the terms of that notice is expected to be allowed on the limited grounds from 2018.

The limited grounds are:

  1. The exemption will be limited to advisory services provided by approved providers that relate to certain eligible products:
    • KiwiSaver schemes and other managed funds
    • bank term deposits and call debt, building society and credit union shares
    • listed equity securities; government bonds; listed debt
    • general insurance products, such as home, contents, and vehicle insurance
    • personal insurance products, such as life, health and income protection insurance, and
    • consumer credit contracts (including mortgages).

The financial limitations on the amounts of the above mentioned services:

  1. None

The abovementioned exemption does not extend to:

    • non bank term deposits
    • other managed investment schemes (such as forestry partnerships or property syndications), or
    • any form of discretionary investment management service.

 

Rules

Financial advisers to provide personalized digital advice services to retail clients, provided that such advisers are:

  1. Be registered with the FSPR;
  2. Meet the disclosure, procedural and record-keeping requirements. Namely: the financial advisers will need to disclose the information listed in the exemption to each retail client before or at the same time as the client receives advice through the service, by:
  • explaining the nature and scope of the service
  • details of the fees for the service and other remuneration the provider receives
  • details of any interests or relationships that are reasonably likely to materially influence the provider when providing the services, and
  • the complaints’ handling procedures.
  1. Meet the procedural requirements. Namely: creating and implementing procedures that correspond to requirements below:
  • put the interests of the client first and act with integrity;
  • effectively manage conflicts of interests;
  • behave professionally in all client dealings and ensure communications are clear, concise and effective; and
  • take reasonable steps to ensure the service is suitable for the client.

 

 

  1. Meet the record-keeping requirements. Namely: keeping written records to show how they comply with the exemption conditions and make these available to the FMA on request including the copies of the advice provided through the digital advice platform, the client information used to generate that advice, and the algorithms and software used by the digital advice service.

 

  1. Comply with the conduct obligations in Part 2 of the Financial Advisers Act.

 

  1. Be authorised by the FMA.  The FMA will require:
  • good character – delivery of director and senior manager declarations covering a range of compliance topics.  For many licensed providers, this criterion will already have been met
  • capability – demonstration of expertise in the necessary technology and algorithms used, and the knowledge, skills and experience to oversee and review the advice generated
  • risk management processes – establishment of processes that monitor and test the digital advice service
  • information technology systems – the IT systems are secure, reliable and efficient, and risks are managed, including that there are cyber-resilience, and data and system security, controls to manage disruptive events and protect client data, and
  • client filtering processes – filtration out of certain people for whom the advice is not appropriate, or who want advice on areas outside the scope of the service provided.

 


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