Thinking behind voluntary authorisation explained
Risks of implementing voluntary authorisation are the creation of a de facto regulatory standard and the dilution of the authorised financial adviser (AFA) brand according to the proposal made to Cabinet.
Tuesday, September 28th 2010, 5:53AM 
2 Comments
by Jenha White
However, the Ministry of Economic Development (MED) and Commerce Minister Simon Power make it clear in the Voluntary Authorisation Cabinet Paper that these risks are not significant and do not outweigh the benefits of implementing voluntary authorisation.
Cabinet agreed and last week it was announced that regulations are to be developed to allow voluntary authorisation under the Financial Advisers Act (FAA).
In the paper Power says there is a risk that voluntary authorisation may compel a number of category two advisers to become authorised to maintain their existing business.
"As greater numbers of insurance advisers and mortgage brokers become authorised, it is likely that there will be increased competitive pressures on the remaining parts of the sector to seek authorisation. This in turn will have the effect of creating a minimum standard for the industry."
Power and the MED believe however, that this consequence is consistent with encouraging consumer access to competent advisers.
The second issue brought to light is the possible dilution of the AFA brand.
The main concern here is that consumers may not understand that there will be a category of AFAs who will be unable to provide advice on investment matters which could create general confusion about the appropriate adviser to use for specific advisory needs.
However Power is not convinced that the risk is significant. He says the purpose of authorisation was to provide quality assurance and accordingly, an AFA will be held to the same standard, irrespective of the type of product, enabling category two advisers to voluntarily become authorised.
The MED says this risk may be mitigated by the imposition of terms and conditions by the commission.
"Such terms and conditions could require advisers who are limited to providing category two services to disclose the scope of their authorisation to their clients. If the proposed regulations are promulgated, it is likely that the commission will require such disclosure under their terms and conditions."
It says the draft Code and the proposed disclosure regulations will also require advisers to disclose any limitations on their scope of their financial adviser services including any limitations on the financial products or range of financial products they are permitted to advise upon.
As a result of analysing these costs and also looking at the benefits Power and the MED both recommended that regulations be developed that allow a person to seek authorisation to provide financial adviser services in relation to category two products.
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
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I guess time will prove whether this laissez faire approach will work – although my money is on an environment of confusion, arbitration and continued deregulation of the financial services industry.
Wouldn’t it be neat if for once the Politicians & rule-makers could put the interests of consumers ahead of industry-bodies with lobbiests…