Guidance Note: Supervising trainee advisers
The days of taking on a new adviser and giving them your ‘C’ clients and telling them “go and contact this list and see what you can do with it” are long gone, especially if the ‘C' clients have or need Category 1 products.
Under the Financial Advisers Act 2008 (FA Act), there are AFAs, RFAs and QFE Advisers. Different services are permitted to be provided by different advisers. An adviser is not permitted to provide a service for which they lack the competence, knowledge and skills (Code Standard 14), or do not hold the relevant authorisation category, or are not the appropriate type of adviser within the relevant employment structure. For example, an RFA who is not a part of a QFE, is unable to provide personalised advice to a retail client relating to a Category 1 product.
In addition, Section 33 of the FA Act states “a financial adviser, when providing a financial adviser service, must exercise the care, diligence and skill that a reasonable financial adviser would exercise in the same circumstances.”
The standard conditions for authorised financial advisers (condition 6) states:
“Where the AFA is responsible for supervising trainee financial advisers, the AFA must act professionally and must always ensure there is an appropriate level of supervision of the trainee including during any client interaction. The supervising AFA must ensure that the trainee does not provide services to the clients that can only be provided by AFAs.”
A new adviser will need to operate under an AFA’s authorisation. The AFA will need to ensure there is a documented plan for the trainee adviser to obtain their formal qualification (NCFS (5) or alternative qualifications and Standard Set B) plus a documented plan showing how the trainee adviser is supervised and trained to interact with the client. The AFA is probably going to have to spend more time than before supervising the new adviser and there will certainly need to be far more documentation, meeting notes and signoffs than was previously required.
The supervision process will be graduated. It will start with the trainee adviser watching and learning from the AFA. It will transition to the trainee collecting the data and drafting the Statement of Advice (SoA) that is then reviewed and signed off by the AFA.
After appropriate training and documented review, the trainee adviser will eventually be able to conduct the initial meeting, collect the data, draft the SoA, formally present the SoA to the AFA and have it signed off, then present the SoA to the client and implement the advice. However, until the trainee adviser actually becomes an AFA, the supervising AFA will be intimately involved in the advice process and will be legally responsible for the advice that is given. The challenge is finding a compromise between fulfilling the Regulator's expectations, meeting the law, training the new adviser and having a commercially viable way of bringing on board a new adviser. This is particularly important for smaller practices who need to get an economic return from a new adviser more quickly than a corporate.
Download the full Guidance Note below to read more.