New era of professionalism for financial advisers

Media Release
29 June 2011

From Friday 1 July, financial advisers will be regulated under new rules administered by the Financial Markets Authority (FMA).

All advisers must be registered on the Financial Service Providers Register (www.fspr.govt.nz) and if they advise retail clients they must belong to a dispute resolution scheme. Those who advise on investments must also be licensed by FMA and meet minimum qualifications and professional standards.

FMA Chief Executive Sean Hughes says the new rules are an important step in restoring investor confidence in the financial markets.

"Many Kiwis make decisions that affect their financial future without getting any professional advice at all. I think there's been a perception there are too many cowboys out there. But now they can be a lot more confident about the professional standards and integrity of financial advisers."

Mr Hughes said under the new rules, an adviser must only recommend investments and products that suit their clients' situation and needs.

"Importantly, they must explain the risks of an investment while they are also selling its benefits to ensure it suits their client's circumstances. All of this advice must be in plain language they can easily understand."

Mr Hughes cautioned that investors needed to continue to take care and gather all relevant information before making any decisions.

"While the new rules provide a base level of assurance for investors, they don't provide any investment guarantees. Investors need to do their homework and ask questions before committing to investment choices.

"The new regulations will make this easier. For instance, advisers giving investment advice must now use a standard disclosure document that shows whether they are being paid fees, commissions or other financial and non-financial benefits. This helps clients see if they may be favouring products that will net the adviser more money and rewards."

FMA will actively monitor the market to ensure that financial advice offered is delivered by licensed professionals and will take swift action against those who breach the rules.

Over the last year in particular, FMA has worked with thousands of financial professionals to help them get ready for regulation.

The new rules provide for three types of advisers:

Authorised Financial Advisers (AFA) - There are now nearly 1400 AFAs and more approvals are pending*. AFAs can advise on more complex investment products and can also offer investment management and planning services.

Registered Financial Advisers - A further 4000 professionals act as Registered Financial Advisers (RFAs). RFAs can provide advice on simpler products including insurances, term deposits and loans.

Qualifying Financial Entities (QFEs) - Alongside individual financial professionals, 63 companies have been registered as Qualifying Financial Entities. These include banks, insurance companies and friendly societies. Within these companies, over 20,000 employees are able to advise on financial products such as KiwiSaver, managed funds and insurance provided by their company.

Financial advisers and the services they can offer can be checked on a public register available at www.fspr.govt.nz.

* Financial advisers in earthquake-affected Canterbury have until 1 October to become Authorised Financial Advisers.

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