Financial Advisers Regulatory Regime Comes Into Force

(Media releases from the Securities Commission)
1 December 2010

The new regulatory regime for financial advisers begins today, with the first Authorised Financial Advisers receiving their certificates of authorisation at a ceremony in Auckland from Commissioner for Financial Advisers, David Mayhew. The regulatory regime will be phased in between today and 1 July 2011.

David Mayhew congratulated the new Authorised Financial Advisers (AFAs) for their commitment to professionalism in being the first to qualify.

"These first AFAs are to be commended for preparing for the new regime so promptly. They've shown the kind of professional responsibility that the new regime is designed to promote among all financial advisers," he said.

David Mayhew notes that from today all financial advisers have a statutory obligation to act with care, diligence and skill.

"That gives the investing public greater legal recourse in the event that things go wrong. But the advisers who have qualified as AFAs have gone further.

"If you're a retail client dealing with an AFA you'll know they're qualified to provide investment advice, they'll be disclosing how they're paid and they are required to put your interests first and to provide plain English investment advice for your personal situation," he said.

Ten advisers have so far qualified as AFAs around the country. Some 4,000 advisers have taken the first step in the process by registering for qualifications, and 2,128 have booked examination dates for the core exam for AFAs. Advisers also need to gather testimonials and develop comprehensive business statements.

David Mayhew urged advisers wishing to qualify as an AFA to keep moving promptly through the assessment processes.

"From early 2011, the Securities Commission will be signalling to the public that if they want personalised investment advice they should be dealing with an AFA.

"Investors have a right to expect their adviser to engage now to obtain the professionalism expected of them under the new regime," he said.

"They shouldn't have to wait until the law takes full effect on 1 July 2011."

The new financial adviser regulatory regime

The main features of the regime, which began its phased implementation today, are as follows:

Financial Service Provider Register (FSPR)

All entities that provide financial services must be registered with the new FSPR from today, except financial advisers who have until 31 March 2011. From 31 March, it will be an offence to offer financial advice commercially without registration on the FSPR. The FSPR will allow consumers to check to see if someone or a company they are considering dealing with is a legitimate provider.
www.fspr.govt.nz

Disputes and complaints

Every Registered Adviser is required to belong to one of four approved dispute resolution schemes. This is designed to be the mechanism for resolving any issues a client might have with the service they have received from their adviser. The FSPR will list the dispute resolution scheme the adviser belongs to. In addition, complaints about adviser conduct can be made directly to the Securities Commission from 1 December 2010.

Adviser categories

The main types of advisers are:

1. AFAs - registered and authorised
2. RFAs - registered
3. QFE advisers - entity is registered not the individual

Authorised Financial Advisers (AFA)

From today Authorised Financial Advisers begin receiving their AFA certificates and can start marketing themselves as an AFA. An AFA has qualified via a combination of exams, existing qualifications, and documentation to show good character. Advisers wishing to qualify as an AFA have until 1 July to complete the process. From 1 July it will be an offence to provide retail clients with investment planning services, or personalised advice on complex products, without authorisation.

• Investment planning and personalised advice

  AFAs are able to provide retail clients with investment planning services and personalised advice on Category 1 products. Category 1 products are more complex investment products such as shares, certain unit trusts, KiwiSaver products and insurance products with an investment component.

• Code of Professional Conduct

  AFAs are subject to a new Code of Conduct that sets out the standards of professionalism that will be expected of an AFA.

• "Independent" advisers

  From 1 December AFAs may not describe themselves as "independent" if they receive commissions or any other sales incentives to sell any financial product.

• Disciplinary committee

  A statutory disciplinary committee has been set up to consider possible breaches of the Code of Conduct. This comes into being on 1 December. The Commissioner of Financial Advisers chairs this committee which may, for example, impose fines of up to $10,000 or recommend the withdrawal of authorisation.

Registered Advisers

Registered Advisers are only able to sell category 2 products, which are simpler off the shelf products such as mortgages and bank term deposits. Financial advisers have until 31 March to register on the Financial Service Providers Register.

Qualifying Financial Entity (QFE) Advisers

A QFE is a company that offers financial services and sells financial products. QFEs undertake to take responsibility to provide a prescribed level of training and supervision for their employees that offer financial advice to the public. A QFE adviser may sell category 2 products and any category 1 (AFA level) products that are produced by the QFE.

ENDS

Note for Editors:

KEY AFA STATISTICS AS AT 1 DECEMBER 2010

*Set B is an essential pre-requisite to become an AFA so this statistic gives a good indication of AFAs in the pipeline.

Ends

Contact Rebecca Barclay 04 471 7666 or Roger Marwick 04 471 765