The costs of advice

I love Calida Smylie's piece in The NBR today. 

Recall that the government chose to default everyone into Kiwisaver. It subsequently put a big regime around provisions of financial advice, with all kinds of rules about who's allowed to say what about which and all kinds of penalties for getting things wrong.

Those two came together in interesting ways:

The Financial Markets Authority has softened its stance on KiwiSaver advice, after it found providers were not providing any, in fear of breaking the law.

New Zealand is baking stupid levels of risk aversion into business decisions. We see it in health & safety rules; we see it too in financial advice.

And, surprise surprise, the fault apparently lies with those subject to the rules for being too risk averse in applying them when big penalties apply for getting things wrong:

“With the revised guidelines, we’ve tried to help providers understand what they can give in the way of class financial advice,” says FMA director of regulation Liam Mason.

“What we’re saying is there’s a lot more help that can be given without fear of crossing a regulatory line, than was thought before… You can give help to people making KiwiSaver decisions without worrying about straying into personalised advice.”

It's good that they've put in revised guidelines that, presumably, companies can point to if they're ever pulled up on this stuff. Eventually regulators might update so that they're not constantly surprised that the threat of big big penalties results in strong risk aversion while people learn what the boundaries are.

The piece also notes that the FMA wants providers to have improved the amount of advice given to customers. More boxes to tick before the providers' next meeting with the FMA....

HT: Bryce Wilkinson