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Power plugs holes in financial adviser legislation

Commerce Minister Simon Power has plugged some of the holes in the financial adviser legislation, announcing cabinet sign-off to allow groups of related companies to register as qualifying financial entities (QFEs).

Thursday, May 6th 2010, 10:09PM 1 Comment

by Paul McBeth


The government's recommendations have been sent to the Commerce Select Committee.

Power said the QFE model was "too inflexible to accommodate certain legitimate business models", and that it was appropriate for the related companies to "collectively take responsibility for the specific entities in their group."

The Ministry of Economic Development estimates compliance costs for QFEs will reduce the number of authorised financial advisers (AFAs) firms need to employ, with savings as high as $3 million for the largest entities, according to its regulatory impact statement.

The MED said it was possible that "this proposal will create an incentive for independent financial advisers to join a QFE to avoid their obligation to train and to avoid the cost of authorisation," but this was offset by the "significant marketing advantage" for financial advisers who are not tied to QFEs, and the wider scope of services on offer from AFAs, including financial planning, to make them more competitive.

To allay concerns around this area, Power said the Securities Commission will apply an ‘if not, why not' policy for advisers in QFEs, to ensure non-AFAs meet the same standards from the Code of Conduct as if they were authorised.

Cabinet also agreed to reduce the obligations on advisers to wholesale clients, allow companies to issue generic advice through brochures and increase the Securities Commission's and Commerce Minister's ability to grant exemptions.

"These amendments will target the regime in the areas of the financial adviser industry that are most in need of increased oversight, will allow firms to provide advice efficiently, and will future-proof the regime," Power said in a statement.

"We need to ensure that those people who do not need the comprehensive protection of the regime are not unduly burdened, while minimising the risk that the definition creates a loophole for the unscrupulous," he said.

Parliament's Commerce Committee began hearing submissions on the legislation to amend the Financial Advisers Act on Thursday.


Paul is a staff writer for Good Returns based in Wellington.

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Comments from our readers

On 7 May 2010 at 9:18 am Bazza said:
To OFE or not QFE that is the question... Good to see the rules keep changing in favour of the large entities, (read banks), who can actually most afford the costs of regulation. Long live the AFA's...
Commenting is closed



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