Gearing up for the new code

• Advisers cannot hide under the umbrella of a QFE to avoid scrutiny
• At the heart of the legislation is the protection of the consumer
• Authorised Adviser status is all about professionalism
• The change is coming, so don’t wait until late 2010 before doing anything

The road show (conducted in a panel format) included representatives from the Code Committee, ETITO and the Securities Commission. The panel was humanistic and responsive in its stance towards advisers. The message was clearly one of collaboration – the Code Committee is doing its best to come up with a framework that will give consumers confidence in the industry; while at the same time, giving advisers a chance to respond within a realistic timeframe.

Below is a summary of some of the key points from the road show:

Advisers cannot hide under the umbrella of a QFE to avoid scrutiny

There has been a school of thought amongst advisers that, if you want to avoid the pain of having to register as an independent AFA, you could hide under the umbrella of a QFE and thereby abdicate responsibility.

The QFE regime was put in place to help streamline the process – clearly it’s not feasible to register the thousands of individuals who have some involvement with giving consumers financial advice; and so the QFE status was invoked.

However, the same standards apply whether advisers are operating as independents or under QFE status. The Securities Commission is there to supervise and will take action with the individual, if the QFE is not offering appropriate supervision.

It is the view of Strategi that those contemplating joining a QFE should be those who are employees of that organisation or those who perceive a distinct business advantage in belonging to that QFE. They should not be joining to obtain an ‘easy ride’ through the regulatory path.

At the heart of the legislation is the protection of the consumer

The panel mentioned that in general terms, the New Zealand consumer has lost confidence in the financial advisory industry. It is in everyone’s interest to restore that confidence. Consumers want quality advice and advisers want to be regarded as professionals who proffer expert advice. If the industry is to grow, it needs to demonstrate credibility, professionalism and high status. The recently published Consumer NZ survey on investment advice, demonstrates just how far advisers need to move to restore public confidence.

Authorised Adviser status is all about professionalism

When the Commerce Minister announced in October that it was proposed that Term Life insurance be classified as a Category 2 product, some insurance advisers thought this would absolve them from having to become authorised. The question Angus Dale-Jones asks is “why wouldn’t you want to be registered AND authorised, so that you can then sell both Category 1 AND Category 2 products? Because, if you are not authorised, you won’t be able to give that advice – your only option is to be registered under a QFE.”

If you are going to operate in a market where you face competition from your peers, wouldn’t you want to be seen as being among the best in terms of professionalism? In which case, going for authorisation, not just registration is the route for you.

If you choose to avoid AFA status, then you must be clear about your boundaries in terms of giving advice. If you are going to be asking questions during the planning process, then it is better to be authorised AND registered.

The change is coming, so don’t wait until late 2010 before doing anything

The change is coming. It’s not a matter of “if” but “when”. The Code Committee made reference to the inquiry into financial products and services in Australia and its impact on the New Zealand financial planning industry. A report is expected to be released on 23 November 2009 by the Australian Parliamentary Joint Committee on Corporation and Financial Services on the issues associated with recent financial product and services provider collapses in Australia. The Code Committee will be taking into consideration the outcome of this inquiry, and it is possible some of the ideas from that enquiry may be included in the new standards of Professional Practice and Capstone Knowledge.

ETITO (the Industry Training Organisation responsible for designing the Unit Standards) is going to bring to market in December 2009 an on-line process enabling advisers to assess their own competence against the newly imposed standards. The outcome from this will be to make an assessment as to whether the adviser has a training gap; needs to gain more practice in a certain skill or knowledge area; or whether further evidence is required.

What is known is that all advisers – even those who are already experienced and competent will need to become familiar with what is currently known as “Capstone Knowledge B” This is a new Unit Standard being developed, the content of which will only be available in the public domain from June 2010.

The panel intimated that December 2010 is the launch date for the new regulations and advisers are expected to have met the requirements by that date. To ensure this is done, the panel suggested that advisers work out now where they may be deficient in the educational requirements and enrol for the relevant courses sooner rather than later. Waiting until mid next year before commencing the process may mean that the deadline is not achieved. Strategi is rolling out the first of its level 5 courses in early December.

The Code Committee has also highlighted the exemptions under the Financial Advisers Act 2008 (Act) for Chartered Accountants and Lawyers. The exemption under the Act for a Chartered Accountant is limited to giving advice or making an investment recommendation/transaction in the course of their professional practice, if the advice or transaction is a necessary incident of professional accounting practice.

If you have any questions relating to the above and the implications it has for you or and your business, please feel free to contact Strategi at any time.

Links:
www.financialadvisercode.govt.nz
www.beehive.govt.nz/release/amendments+financial+advisers+regime
www.etito.co.nz