AFAs authorised on or before 30 April 2011 (and who have not yet provided their ABS annual confirmation to the FMA) are required to provide annual confirmation to the FMA by 11 May 2012.
AFAs failing to comply with this Standard Condition 1 may be considered to be in breach of their obligation to comply with terms and conditions of their authorisation. Advisers failing to comply commit an offence and may attract a fine up to $5,000 (Section 126 of the Financial Advisers Act 2008).
The FMA recently released guidance on how AFAs can fulfil this obligation. The process is easy and simply done via an email to firstname.lastname@example.org.
The confirmation should state you have completed a review of your ABS and that it accurately reflects, (or has been updated to accurately reflect) your:
- adviser business activities including clients and types of products and services.
- compliance arrangements including advertising and disclosure, suitability of advice processes and record-keeping.
- continuing professional development records.
Some examples that may trigger a requirement to update the ABS (before the confirmation is provided to the FMA) are below:
Adviser business activities including clients and types of products and services
- Providing a class service via seminars or presentations where no such service was provided earlier in the year (or ceasing to provide such a service if the AFA has made a decision not to provide such a service in the future.) If the ABS states the AFA provides a class service but in reality they don’t, it is recommended the relevant wording is deleted from the ABS prior to providing the confirmation to the FMA about the ABS being current.
- Providing a new service (such as QROPS) or ceasing to provide a service (such as insurance). If the AFA has made a business decision to focus only on investments and refer clients for insurance-related business the ‘Products and services' section of the ABS should be updated to reflect this change. In addition, the referral relationships, if any, should be disclosed in the 'Business relationships' section of the ABS.
- Entering or terminating a business relationship during the year.
- Compliance arrangements including advertising and disclosure, suitability of advice processes and record-keeping
- Engaging an external agency (e.g.Strategi) for compliance services. However, if the ABS states the AFA is engaging Strategi when in reality they are not, they should immediately initiate a dialogue with Strategi if they intend to use the compliance services, or the relevant wording must be deleted from the ABS prior to confirming it is current.
- Undertaking supervision of trainee advisers, where no such supervision was carried out prior. If the AFA has undertaken supervision of trainee advisers the ‘Role' section of the ABS should be updated to include information about how many hours per week are spent on supervision and briefly describe the supervision process.
- Engaging a telemarketing agency for marketing the products or services. The ABS should reflect the AFA’s involvement in ensuring the telemarketers are not marketing the products or services in a manner likely to be considered as deceptive or misleading.
- Starting a website providing information about the business activities. AFAs should carefully check their website contains no material that could be considered as misleading, deceptive, or confusing and also ensure the website contains a reference to their disclosure statement being available, on request and free of charge.
- Implementing a new CRM system for maintaining client records. If the AFA has implemented a new CRM system or made changes to the way client records are maintained, the 'Record-keeping' section of the ABS should be updated to ensure the ABS accurately reflects the record keeping arrangements.
- Continuing professional development records
- If your ABS states you maintain a CPD log that is up-to-date, then ensure all completed training is appropriately recorded. Ensure your 'structured' hours are in fact structured training in accordance with Code Standard 18.
- If the AFA does not have a professional development plan or if the professional development plan contains a description of activities no longer relevant to the financial adviser service they provide (for example fire and general insurance or business insurance where these are no longer the areas in which the AFA is offering advice or is unlikely to offer advice), the AFA should prepare or update their professional development plan prior to confirming their ABS is current.
The list given above is illustrative and not exhaustive. AFAs should carefully review each and every section of the ABS and ask, “Does this accurately describe the way I do business?” If the answer is no, they should either do what they state they do in their ABS or make appropriate modifications to the ABS prior to confirming it is current.
All the above may appear overwhelming at first sight but a regular review of the business will help advisers to have a process and timeline in place to rectify the areas identified as non-compliant during the reviews. This will provide confidence and peace of mind to the adviser prior to providing confirmation to the FMA that they are actually operating in a manner as stated in the ABS.
Strategi can assist advisers through a range of compliance solutions. The cost of a compliance review will likely be a fraction of the cost of a penalty, fine or determination against you, and has potential benefits that will add to your bottom line.