Over the past few weeks, I have attended three peer group sessions concerning registration and authorisation of financial advisers.
There are now two main pieces of legislation in place that govern all financial advisers' activities. These are the Financial Advisers Act 2008 (FAA) and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSP).
With the establishment of these Acts, a Code of Professional Conduct Committee was appointed to set the standard for all persons giving financial advice.
Subsequently, the code has defined the level of qualifications required of a financial adviser depending on the products and services provided.
The code has defined two categories of products and services.
Category 1 products include a security, a land investment product, a futures contract, an investment linked insurance product, another specified by regulation and a renewal or variation of an existing category 1 product.
Category 2 products include bank term deposits, bonus bonds, call products such as building society, credit union and debt securities, and shares in a co-operative company; with more to be added.
For an individual adviser to provide advice on category 1 products, the adviser must be both registered (RFA) and an authorised financial adviser (AFA).
Organisations such as banks can be a qualifying financial entity (QFE).
Within a QFE, most advisers would only provide advice on category 2 products. However, an adviser in a QFE can provide advice on category 1 products as long as they are from the QFE's own issued products.
It is expected that in time all advisers will become AFA within a QFE.
All advisers to become AFA need to reach a standard of NZ Qualifications Authority level 5.
Fortunately, many of us who have been in business for some time can use existing qualifications such as a diploma in business studies and the certified financial planner (CFP) qualifying mark to receive credits for most of the standards set for level 5, but we all have to pass standard set B, which is about the legislation requirements of FAA and FSP.
From December 1, all financial advisers must be registered with the Companies Office.
They also have to complete the requirements for NZQA level 5 to become authorised AFA by July 1, 2011.
It is expected that some 5000 to 6000 persons will become AFA. We as practitioners in the industry are very happy about this compliance.
It has always been possible for anybody to call themselves a financial adviser.
We are embracing the change because those of us who have belonged to existing professional bodies that have already set codes for ethics and standards, have long been concerned about the lack of ability to rid the industry of the cowboy, the here today and gone tomorrow no-name with no care or responsibility, just after a quick buck.
The registration and authorisation process will provide teeth to prosecute those not AFA.
We will be subject to random audit regarding the code of conduct which embraces more than just the FAA and FSP. Advisers are required to be very transparent with fees and provide comprehensive disclosure on their time in the industry, cash handling procedures, qualifications etc.
My disclosure statement is now 12 pages.
We still have to abide by the Fair Trading, Consumer Guarantees and Trustee, Acts.
From July 1, 2011, our industry (and the Government) hopes that persons seeking financial advice will ask the right questions to make sure that they are only dealing with an authorised financial adviser.
Peter Smith is a certified financial planner and is the principal of Peter Smith Financial Services Limited, Dunedin. Email: finance@petersmith.co.nz A disclosure statement is available on request and free of charge.
