By Amanda Morrall
Where does corporate accountability end and personal responsibility begin?
It is a question that policy makers, financial service sector providers, and consumer advocates struggled with at the Retirement Commission's bi-annual financial literacy summit held in Wellington.
One suggestion put forward that is bound to rankle banks is that they foot the bill for a financial advisory service where members of the public could get free, unbiased information and guidance about how to get their financial affairs in order, with no pressure or compulsion to buy products. Imagine a supped up version of sorted.org.nz with budgeting advisors on hand to offer personal advice. It would be similar to the Money Advice Service recently launched in the U.K.
The money for such an offering would theoretically be channeled through the new Financial Markets Authority, whose own financial livelihood is in the process of being reviewed by the Ministry of Economic Development.
While the Government is financing part of the FMA, Cabinet has mandated additional third-party funding to be sourced through fees and levies imposed on members of the financial services sector. Who will pay what and how much is the subject of this latest discussion paper put out by the Ministry of Economic Development.
The administration of the new Financial Advisors Act (2008) alone is estimated to cost NZ$6.2 million a year, an expense that will be carried by advisors themselves and ultimately by consumers, a point often overlooked by the paying public.
David Kneebone, executive director of the Retirement Commission, urged participants at the financial literacy summit to have their say through the MED discussion paper before the July 8th cut-off for submissions.
In a presentation explaining the U.K. Money Advice Service model, CEO Tony Hobman said the programme had been well received by its British audience not only because it was free but also because it was regarded as a trustworthy place to receive unbiased financial information. In addition to the information available on its website, the Money Advice Service offers one-on-one financial counseling over the phone, in person or on-line.
Good for your health, good for your marriage
Hobman said research has shown a clear link between improved financial capability and well-being.
- One study found that improved financial capability reduced the likelihood of suffering a health problem related to anxiety or depression by 15%.
- The relative impact of enhanced financial capability on well-being is exponential. It's said to have at least seven times the impact on well-being as an additional 500 pounds a month in household income.
- Being money smart is also said to be good for one's marriage. Those with low level financial literacy are believed to face double the risk of divorce as a result of stress related to money problems.
Whether the financial services sector would be prepared to finance an extension of sorted.org.nz's services, given that so many banks have a vested interest in grooming their own advisory channels, remains unclear.
The inception of the Financial Markets Authority and the Financial Advisors Act could deliver an unexpected bill shock to those it aims to regulate.
As well as having to offset the cost of the new consolidated market conduct regulator (the FMA), yet to be determined parties in the financial services sector will also be forced to pay for the new External Reporting Board (XRB) which replaces the Accounting Standards Review Board (ASRB) at the start of next month.
On top of that, perennial deficits faced by the New Zealand Companies Office (NZCO) and Insolvency, Trustee Service (ITS) -- two business units run by the Ministry of Economic Development -- will be addressed through a separate fee and/or levy imposed on as yet specified parties.
The MED (in its discussion paper) outlines a few different scenarios whereby the revenue needed to fund these regulatory agencies can be captured.
With respect to the FMA levy, it has proposed two options:
Its "preferred option" is to see all those financial service providers registered under the Financial Service Provider Registration and Dispute Resolution be charged an annual fee of NZ$910. Alternatively, all companies, limited partnerships, building societies, credit unions, industrial and provident societies, friendly societies and contributory mortgage brokers would pay NZ$20 a year.
While the collection of fees for those governed by the Financial Advisory Act started in 2010/2011, levies will pay for other costs incurred covering the implementation of the regime.