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Insurance groups welcome changes to regulation

Insurance advisers will no longer have to become authorised financial advisers (AFA’s) unless they are giving investment advice according to a Commerce Committee recommendation on the Financial Advisers Act.

Friday, June 11th 2010, 3:19PM 6 Comments

by Jenha White

The definition of financial adviser which previously encompassed investment advisers, insurance advisers and mortgage brokers has now been split.

They are now separate categories with different rules applying for brokers and financial advisers.

Previously a person performed a financial adviser service if they gave financial advice, made an investment transaction or provided a financial planning service.

Now a person performs a financial adviser service if they give financial advice, provide a discretionary investment management service or provide an investment planning service.

The definition has been clarified to try and avoid the issues raised by many submitters around the borders between genuine financial planning and simply providing a needs analysis before recommending a particular product, such as insurance.

The new wording is helpful in this respect referring to "an analysis of the individual's current and future overall financial situation", although the same arguments can still be made.

This means that insurance advisers now have three options to become either an AFA, a registered individual or a QFE adviser.

PAA chief executive Edward Richards says the original driver of the FAA was to address the investment world where mum and dad investors were hurt when finance companies failed.

He says insurance and mortgage brokers got dragged into the legislation and the line became blurred even though they weren't the primary focus. He believes the announced changes provide more clarity.

He says even though changes have been made, many insurance advisers have started down the education track investing a lot of time and money to becoming authorised.

"I think many will want to progress with authorisation now they have started rather than turning around, even if they are not providing investment advice."

He says the PAA board has not analysed the changes properly and it needs time to understand it before it advises people about what they should do.

Life Brokers Insurance Association president Ron Flood says older brokers who may have been looking to leave the insurance industry early because of authorisation will now have more time to transition out over the next few years with the rules having changed.

He says this may give them the opportunity to mentor new brokers coming into the industry.

"It's good news for good news for risk advisers that just sell risk, but we feel advisers should get authorized so they can offer more comprehensive services."


Jenha is a TPL staff reporter.

« Finance Committee report recommends some relief for small insurersWho’s afraid of the big bad banks? »

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Comments from our readers

On 11 June 2010 at 4:34 pm Phil Jones said:
A great victory for common sense. Maybe there is hope yet for the middle east
On 11 June 2010 at 4:37 pm Neil Smith said:
I'll still seek AFA I think.
On 11 June 2010 at 5:19 pm Daniel Cropp said:
At least there is clarification around what each sector must do as a minimum. No more guess work..
On 11 June 2010 at 6:00 pm Graeme Lindsay said:
It would appear that finally, reason has prevailed, and amazingly, it has come from the Parliamentary Select Committee and not the Code Committee that was supposed to be representative of the industry.

I suggest that for insurance advisers whho expect to be in the business for 5 years, logic suggests that whilst they don't need to become an AFA, it does make a lot of sense to get the best qualification available in your field! Now tho', there's no deadline imposed by legislation or regulation.

Further, the need for robust processes is undeniable! It is crucial that we all carefully review our systems and processess to ensure that they meet the standards set by the Code (ewhen it is finalised).

The best thing that we can do is to voluntarily meet the standards set for AFAs even we only need to be RFAs.

Have a great weekend!
On 11 June 2010 at 7:29 pm andy said:
well said graeme; our own business will all progress to afa regardless.
now that we are aware of most of the pathway to the end objective our agents have welcomed the opportunity and more education; the better the adviser (for all involved)
On 18 June 2010 at 9:15 am tony vidler said:
well said Graeme.

The reality will be that the Code applying for AFA's will become the defacto standard for all financial advisers (in the words ot the latest bill - "the benchmark for consumer protection"), AFA's will receive the benefit of positive consumer advertising & positioning by regulators, AFA's will have business portability and choice that RFA's might not have and QFE-aligned advisers certainly won't have, and AFA's will have greater responsibility - but greater business opportunity and therefore the probability of higher business value.

For any Category 2 specialist adviser who plans to be in the busines beyond the next 3 years, becoming an AFA would appear to simply be a good commercial decision. And I firmly believe the regulators wish to have as many advisers as possible either within institutions or as AFA's, so they will seek to fix the debatable point about Category 2 advises perhaps not being able to become AFA's.

My advice to the lifies and mortgage brokers partway through preparing to become AFA's? Carry on with the plan.
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