Registered but unable to give insurance advice

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Insurance companies may unwittingly be doing business with advisers that are not registered to provide insurance advice – yet are registered on the Financial Services Providers Register (FSPR).

Thursday, November 10th 2011, 7:06AM 4 Comments

by Benn Bathgate

The problem in the registration process has been highlighted by Independent Development Solutions (IDS) director Barry Read.

"To be able to act as an adviser you need to select ‘Financial Adviser Service', and then select retail advice, and if you want to authorise or not. Not means category two products only or RFA," he said.

He said that from 750-plus adviser process checks he has conducted, up to 15% of RFAs and around 5% of AFAs had not selected the correct financial service/services.

"Common mis-selections by RFAs are ‘Broking Services' and ‘Acting as an Insurer.' Or they have ticked ‘Financial Advice Service' but not ticked for Retail Clients," Read said.

"Therefore they are registered as a Financial Services Provider, but not registered to give advice on category two products such as insurance and mortgages."

Read said the problem then is that an insurer will check the register, find the adviser in question is registered, leading them to assume they are compliant with the new regulations and able to offer insurance advice.

"While product providers are checking that they are registered on the FSPR, they are not always checking that they are correctly registered to give advice about their products."

Sue Brown, the Financial Markets Authority (FMA) head of primary regulatory operations, said the regulator had become aware of the issue after its initial surveillance activities.

"Some people who have taken the step of registering have made a mistake in some ways, sometimes that takes the form of registering in a trading name rather than a business name, or vice versa, sometimes misunderstanding what the various descriptions mean, broking services is one of those that's most often misunderstood."

Brown said the FMA had been working with affected advisers and that they hadn't resorted to enforcement action.

"Our first approach is to work with people and get it right, and generally we get a receptive response."

She said that while responsibility for correct registration was with the adviser, insurance companies had a role to play in making sure their checks were thorough enough to uncover any such issues.

"Our approach is we expect the product manufacturers to be looking to work with people who are compliant with  the law and therefore we do expect them to do more than to check the adviser is on the register," she said.

"I think our expectation would be that they would check that the person they're dealing with is registered to provide the services they're providing."

For Life Brokers Association president Noel Charles, the situation isn't particularly surprising.

"There'll be quite a number of brokers and sales people that haven't got it right, I'm perfectly convinced of that, and I'm sure that they will all be found out and discovered without any repercussion by the FMA."

Charles also believes this is an issue where insurance companies should take more responsibility.

"It really should be up to the insurance companies as part of their roadshows, saying these anomalies have happened, we've had them explained to us, if you're one of these people you need to address that."

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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