Last year, the FMA announced a review into access to financial advice in New Zealand. I made a submission. A lot of other people did too.

The Financial Markets Conduct Act 2013 doesn’t just have the purpose of regulating financial advice. It also has the purpose of “[ensuring] the availability of financial advice for persons seeking that advice”. To my knowledge, this was the first serious attempt by the FMA to engage with the “availability” half of that purpose. I thought that was important. I still do.

A few months ago, the report landed. I have some thoughts.

The output, relative to the input

Reviews of this kind are hard work. The people involved will have put serious time into this, and the questions are real and difficult. I don’t want to be unfair about the effort that was put into this process.

But.

The FMA conducted 80 interviews. It received questionnaire responses from 30 financial advice providers (FAPs). It commissioned a consumer survey. It engaged professional bodies, financial institutions, technology providers, education providers, and others. It received written submissions from people like me, on top of all of this. Underneath the whole exercise sits a non-trivial amount of public money.

What we got back is a 20-page document. Once you strip out the foreword, the executive summary, the appendices, and the white space, the substantive content is around a dozen pages.

For the work that went in, I was expecting more. Almost every section follows the same pattern: a short paragraph headed “What we want to see”, a short paragraph headed “What we found”, and then a list of “Questions for the financial advice sector”. Almost every substantive question is handed back to the industry.

  • “How can the sector design new advice journeys…”
  • “How can the sector confidently determine the right nature and scope…”
  • “How can firms improve the consistency and delivery of ongoing advice and reviews?”
  • “How can banks better use their direct channels…”
  • “How can the sector develop and deliver advice that better supports consumers approaching or in retirement…”
  • “How can the sector lift cultural competency…”

I’m not against the FMA asking the sector questions. The questions are mostly the right questions.

But there’s a difference between a discussion paper, which puts questions out to industry before doing the work, and a findings report, which puts findings out at the end of the work. This document reads more like the former, but it arrived at the end of the process rather than the beginning.

It reads less like the conclusion of a year-long review and more like a discussion document to start the process.

At this point, I’d rather have findings the regulator was willing to own than a fresh round of homework for the sector.

Here we go again, with misaligned advice

A meaningful portion of the document is devoted to the proposition that banks should be doing more financial advice. There is a dedicated section titled “Banks can make financial advice more accessible”. The framing throughout is gentle. What could banks do? What practical steps could they take to better integrate advice into everyday products – savings accounts, term deposits, mortgages?

I understand the logic. Most New Zealanders have a relationship with a bank. Most don’t have a relationship with a financial adviser. If you’re trying to move the needle on access, banks are an obvious lever.

But.

We have recent, detailed, public evidence about what happens when you ask banks to provide financial advice at scale. It’s called the Australian Royal Commission on financial services. Australia spent two years and a great deal of public money documenting, in granular detail, what bank-provided advice tends to look like when the same vertically integrated institution manufactures the products, distributes the products, and “advises” on the products.

The findings were not subtle.

  • Fees being charged for advice services that were never provided. In some cases to dead people. (dead people!)
  • Advice that systematically favoured in-house product over more appropriate alternatives.
  • Conflicted remuneration structures that incentivised sales dressed up as advice. (sales dressed up as advice)
  • Compliance frameworks inside banks that were inadequate to manage any of it.

A few years before that, the Australian regulator (ASIC) published a report on advice provided by vertically integrated institutions. I’ve written about it before. I’ll repeat the part that has stuck with me. In a sample of advice files where the adviser had recommended an in-house product:

In 75% of the advice files reviewed the advisers did not demonstrate compliance with the duty to act in the best interests of their clients. Further, 10% of the advice reviewed was likely to leave the customer in a significantly worse financial position.

Let me reiterate.

  • 75% of the advice files didn’t demonstrate compliance with the best interests duty.
  • 10% of the advice was likely to leave the client meaningfully worse off. [75% / 10%]

That’s the lived experience, immediately across the Tasman, of asking banks to do advice.

I’m not saying banks should never give advice. I know there are circumstances where a bank conversation is the most accessible touchpoint a consumer will ever have. I can see why the FMA is tempted by that.

What I am saying is this. Any report that urges banks to do more advice has an obligation to grapple seriously with the structural reasons that doing advice from inside a product manufacturer is fraught. The Australian experience is the single most relevant piece of evidence we have on what can go wrong. It does not appear in this report. Not in the bank section. Not in the foreword. Not in the framing. Not anywhere.

Vertically integrated institutions get one short subsection, and it’s written in the most neutral way imaginable – it essentially says the picture varies by institution and product. CoFI gets a passing mention. The fair conduct principle gets one sentence.

I think the FMA can do better than this. At minimum, I’d have liked to see a section that said something like: “We are encouraging banks to do more advice. We are alive to the risks that this creates. Here are some of the specific risks, many of which are addressed by the Conduct of Financial Institutions (CoFI) legislation. Here is how we propose to monitor for them. Here is what we will do, with the powers we have, if we see signs of those risks materialising.”

That section does not exist.

To put it in language I’ve used before: when there is a meaningful commercial incentive for the people delivering financial advice to act as salespeople rather than as advisers, we should expect more sales and less advice. The structure shapes the behaviour. It doesn’t matter how many good people there are inside the structure. Good people inside bad structures still produce bad outcomes. The Royal Commission documented this in painful detail.

After what we watched unfold in Australia, the burden of proof should sit with those who want to push banks further into advice, not with those who are sceptical of it. The report does not meet that burden. As far as I can tell, it does not even acknowledge that the burden exists.

This feels like a “here we go again” moment, and it makes me uneasy.

Porsches, Toyotas, and “right-sized” advice

The single largest theme in the report is what the FMA calls “right-sizing” the nature and scope of financial advice. The diagnosis is that advisers default to a broader scope than the client’s situation requires, even where a narrower scope would do the job. The FMA wants advisers to be more confident in scaling their advice down.

I agree with the diagnosis. I have been making a version of this point for a long time.

A few years ago I wrote a piece called Many financial advisers are selling Porsches when most people want Toyotas. The basic argument was that the dominant model of financial advice in New Zealand – the full-service, six-step, ongoing-engagement model, with implementation and reviews and an annual fee – is the Porsche. It’s a great product. For some clients, it’s exactly the right product. But there is a very large group of New Zealanders for whom a Toyota would do – a one-off engagement, help with a specific decision, a second opinion, a discrete piece of work with a clear start and end and no implementation hand-holding. Almost no adviser in New Zealand offers a Toyota.

Before I get critical, I want to acknowledge what this part of the report has done – for me, personally. As I’ve started getting back into advice, the report’s emphasis on right-sizing has given me genuine confidence that I can offer the Toyota without the regulator assuming the worst. A regulator saying, publicly and repeatedly, that it wants advisers to scale advice to what the client actually needs is a signal. Signals shape behaviour. I’m one data point, but the signal has already shifted mine.

So: credit, sincerely given. But.

The FMA frames the default-to-Porsche problem as primarily a confidence problem. Advisers are uncertain about how to meet their conduct obligations when scaling advice down, so they default to scaling it up.

That’s a part of the story. But it’s not the whole story, and the report’s silence on the rest is telling.

Advisers default to the Porsche because the Porsche is also more profitable. Ongoing service fees produce predictable recurring revenue. Implementation captures product-related remuneration. A full engagement justifies a higher engagement fee. A right-sized Toyota engagement is harder to charge meaningfully for, harder to scale, harder to insure, and harder to build a sustainable business around.

Part of the right-sizing problem is that the commercial model and the regulatory caution are reinforcing each other. Each gives the other cover.

  • The compliance posture justifies the broader scope.
  • The broader scope justifies the higher fee.
  • The higher fee justifies the commercial model.
  • The commercial model entrenches the compliance posture.

There is a Professional Indemnity insurance dynamic that compounds the loop.

The report names the regulatory half of the loop. The commercial half gets glancing acknowledgements – some consumers “are not commercially viable for advisers”, commercial realities “can, at times, prioritise new business over servicing” – but no analysis. The default to broad scope is attributed to perceptions of regulatory risk, and nothing else.

What makes the omission harder to excuse is that the review’s own terms of reference promised this work: one of its four focus areas was “industry business models, including how remuneration structures, service design and distribution approaches influence the availability and delivery of advice”. That analysis is not in the document. As a result, the right-sizing framing reads as primarily a problem with advisers – they are being too cautious, they need to be more confident, they need better case studies, they need to design new advice journeys – when the more honest framing is that we have a market that produces Porsches because Porsches are what the market is paid to produce.

The FMA will need to provide more meaningful guidance on what proportionate, scaled-down advice actually looks like in practice. The industry will need to build business models around services that don’t carry the same margins as the full-service Porsche. As I suggested in my submission, the FMA could have done useful work surveying what has been tried elsewhere in the world.

A genuinely useful report would have engaged with this.

The self-reflection that isn’t there

I made this point in my submission, and I’ll make it again, because the report did not engage with it.

The FMA shapes the behaviour of the regulated. Through the FMA’s guidance documents, its enforcement decisions, its public communications, its conference speeches, and the overall tone it sets, it tells the industry what kind of conduct will be safe and what kind will not. Advisers respond to those signals. So do lawyers, compliance consultants, PI insurers, and dealer groups.

If the sector has settled at a more conservative point than the regime requires – and the report itself argues that it has – then the regulator is part of the story of how it got there. Advisers didn’t become conservative because they wanted to. They became conservative because they were reading the room.

I can offer myself as evidence that the room can be read in the other direction, too. I said earlier that this report’s right-sizing emphasis has already made me more confident about offering scaled advice. One document, one signal, one adviser adjusting his posture. If a single report can shift sentiment, then years of cautious signals are more than capable of building the conservatism this document now laments. This makes the absence of any reckoning with those past signals all the more conspicuous.

I had hoped the report would include some version of: “Here is where we, the FMA, have contributed to the conservatism we are now urging the sector to step away from. Here is what we are going to do differently.”

That section does not exist. The closest the report gets is a paragraph promising to share “best practice and examples” of where flexibility has been used well. That’s a useful thing to do. It is not self-reflection.

(Also, we’re five months in and I haven’t seen a lot of evidence of this sharing.)

I want to be clear about what I’m asking for here. I’m not asking for the regulator to flagellate itself. I’m not asking for a list of past mistakes. I’m asking the regulator to acknowledge that it is one of the inputs to the system it is now critiquing. That’s a low bar. The report does not clear it.

A version of this document that included a frank, honest section called something like “Where we are part of the problem, and what we will do about it” would have landed very differently. It would have signalled to the industry that this is a two-sided conversation, and that the FMA is genuinely prepared to do its share of the work. As it stands, the document reads as a list of things that everyone else needs to do.

That, frankly, is the missed opportunity that bothers me most.

A few other things worth flagging

A handful of shorter points.

Innovation, again. In my submission I asked that the review treat digital advice as one slice of innovation rather than the whole of it. The report devotes a substantial section to digital advice, AI, and fintech. It devotes approximately one sentence to non-technological innovation in business models. This matters because most of the access problems the report identifies are not actually waiting on better technology to solve them. A flat-fee, advice-only practice serving clients that banks won’t touch is innovation. A KiwiSaver provider running employer seminars and getting 25% engagement instead of 10% is innovation. A bank actually putting a customer in front of a human at the right moment is innovation. None of that requires an AI agent. The risk of conflating innovation with technology is that everyone sits around waiting for the AI to arrive while the boring, lower-tech changes that would actually move the needle don’t get prioritised.

The third parties that didn’t make it in. Advisers don’t operate in a vacuum. Their behaviour is shaped – sometimes more than by the FMA itself – by their PI insurers, their compliance service providers, and their dealer groups. Each of these layers has its own commercial incentives, and those incentives generally push toward more conservative, more documented, more standardised, more expensive ways of working. If you want to understand why advisers default to a wider scope than they need, you have to understand what their PI insurer will and won’t cover, and what their compliance consultant tells them is best practice. The report doesn’t go there. It should have.

Nothing on misleading conduct. The report’s own consumer research found 26% of respondents didn’t know where to start in getting financial advice. Where many people start, in practice, is online. And part of what they’ll find is advisers describing themselves as “independent” – and appearing on lists of independent advisers – when they plainly (aren’t.) The report says nothing about this. No mention of misleading or deceptive conduct, of fair dealing, of how advisers hold themselves out. This is an access issue, not just a conduct one. Mislabelled advice arguably does more damage to access than no advice at all, because every consumer who discovers their “independent” adviser wasn’t independent becomes someone who tells their friends that advice can’t be trusted. The trust the report wants the sector to build is being spent at the front door.

The consumer voice didn’t really make it in either. There’s a companion consumer report based on a representative survey, which is useful at the level of “what do people think and do”. It’s not a substitute for getting non-industry voices into the room when the trade-offs are being made. The risk with any review of this kind is that the loudest, best-resourced, and most organised contributions come from people with a direct commercial interest in the outcome – that is: financial institutions and finance providers. That isn’t a moral failing on their part – it’s just how these things work. But it means the regulator has to actively go looking for the perspectives that won’t come to it. There’s no real evidence in the report that this happened.

Where this leaves us

There is one genuinely useful thing in this report – the right-sizing push.

But on the two questions with the highest stakes in the document – whether to push banks deeper into the advice business, and whether the regulator is willing to name its own contribution to the access problem – the report is either looking the wrong way or not looking at all.

A year of work, a meaningful chunk of public money, 80 interviews, and a fair amount of written submissions has produced a document that hands most of the substantive work back to the industry with a fresh batch of questions. I’ll engage with those questions in good faith.

But I’d be a more enthusiastic participant in whatever comes next if the regulator had been willing, in this document, to put more of itself on the table. And I would feel a lot more comfortable about the direction of travel if the lessons of the Australian Royal Commission appeared somewhere in the text.

The report ends each section with questions for the sector. It seems only fair to leave the FMA with a couple in return. Where have your own signals contributed to the conservatism you’re now urging advisers to step away from? And if banks do step further into advice, what will you do if history starts to rhyme?