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The most contentious regulation issue

Friday, May 8th 2009, 3:10PM 3 Comments

by Philip Macalister

The most contentious issue with adviser regulation is going to be around qualifying financial entities or QFEs as they are now known. Today's story on Good Returns gives an indication of this issue. What looks like happening is that category two advisers will be treated quite differently depending on who they work for. The advisers who are most at risk here are those in the insurance and mortgage categories and the two groups will be the independent advisers versus ones who work for a QFE. Essentially the independents will, it appears, have higher thresholds to cross and costs. An adviser in a QFE will not have to do this, rather it will be done by their employer. Another strand in this argument is which organisations will be allowed to become QFEs. One would expect banks and the big financial services firms with adviser distribution networks (like AMP and AXA) to be QFEs, but I know many smaller groups would like this status too. Some sessions I have heard on this have generated quite heated debate. It could become the new version of the rather fractious and fierce fight years ago over "grandfathering". (This was were old hands were accepted into the industry without having to attain certain qualifications while newer advisers had to complete a lot of study.) Sticking with regulation we have the issue of how adviser competency will be measured under the new rules. ASSET Magazine has an article which explains what the expected standards will be. Also the organisation responsible for industry training in financial services, the ETITO, is planning to hold some sessions on how the National Qualifications Framework works and what an Industry Training Organisation does; the purpose and structure of unit standards and national qualifications, and; how workplace assessment takes place. You will need to let the ETITO know by Monday if you are interested in attending these sessions. See the Good Returns Diary page for more information. To add a little more spice to the story we have the head of the Securities Commission calling for a single Australasian advisory market. The home loan market continues to be a stand-off between the banks and the Reserve Bank. Very little of last week's cut to the official cash rate has been passed on yet, although ANZ National yesterday made some small cuts to short term rates. To see what's on offer at the moment check out Good Returns' comprehensive mortgage rates table here. In the variable rate market two of the smaller lenders took on the banks with cuts this week. Good Returns news for insurance advisers this week focused on Russell Hutchinson's lates opinion piece: Folly, money and pain, plus there are a few updates on health insurance sales and Southern Cross. The news stories are here and you can find out more about Southern Cross here. Have a great weekend. Philip
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Comments from our readers

On 10 May 2009 at 10:57 pm Peanut H said:
It seems to me, if you are a financial adviser working for wages or salary you will not necessarily have to meet the same requirements as a financial adviser who is unemployed every Monday and is rewarded for their effort and skill by way of commission or fees.

I agree with the rationale of advisers who give advice on or undertake investment transactions in respect of category 1 products, and all people who provide financial planning services, will need to be authorised by the Securities Commission. But I have real difficulty understanding how employees of a Qualifying Financial Entity will be exempt.

So far the regulators are vague as to how QFEs will satisfy the Commission that they have the capacity to ensure their adviser staff and agents exercise reasonable care, diligence and skill.

If you happen to qualify under a QFE such as a national mortgage broking chain, NZ home loans chain, bank, building society, sharebroker, insurance company, fund manager or Auntie or Uncle General cobbled together collective, how do you leave one organisation to work for another? Will all QFE's have the same reasonable care, diligence and skill set templates?

The securities commission also talks about issues of reducing compliance costs and simplifying regulation. I think this section should start with "have you heard the joke about".

I am reasonably sure the QFE's will gain significant traction over the next few years. This raises the nagging question, will the QFE's structure and economies of scale spell the end of the independent operator and turn the clock back to the 70's and 80's when we selected which product manufacturer we had an exclusive agency with. The products were rubbish then as much of the products are rubbish now.

When you are lying sick or injured in a hospital bed you can be sure all the nurses who are looking after you have all meet the same academic and practical requirements to be registered nurses. Would you want to be looking up from your sick bed and wondering whether the nurse had or had not meet the academic and practical requirements? How comfortable would you feel? Not that I would ever think authorised financial advisers are in the same league as registered nurses.
On 15 May 2009 at 3:49 pm chris louisson said:
Here here! Agreed! If the underlying objective of compliance is to raise the standard of advice being given in the marketplace, why I ask is there any distinction between advisers at all? There is a real risk that insurance advisers will become the second class citizens of financial services if there is a distinction based in what they 'sell'. Do we wish to become the used car salesmen of the sector? I dont!
On 17 May 2009 at 7:19 am Denis said:
Not second-class citizens, more like sticking to what you're good at. I deal with lots of life insurance Advisers who really should not be in the investments arena. If someone asks me about life insurance, I will say that I am not a specialist (but I know a man who is) and refer them on to a specialist I trust. As far as I know, I have lost no credibility and more to the point, I don't waste time trying to find my way around in an unfamiliar part of town.
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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.45 7.05 6.85
ANZ 8.64 ▼7.84 ▼7.39 ▼7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - ▼7.24 ▼6.79 ▼6.65
ASB Bank 8.64 ▼7.29 ▼6.85 6.65
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.29 6.85 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.89 7.45 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼7.09 - -
Co-operative Bank - Owner Occ 8.40 ▼7.29 6.89 6.75
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 ▼7.79 7.39 7.25
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.69 6.45 6.19
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.85 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.79 7.59 7.29
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 8.35 7.89 7.65
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 7.35 6.89 6.75
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.90 7.39 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.30 7.89 7.69
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.30 8.89 8.69
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.95 7.45 7.29
SBS Bank Special - 7.45 6.95 6.79
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 7.05 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 8.19 7.55 7.55
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 7.39 6.75 6.75
Unity 8.64 6.99 6.85 -
Unity First Home Buyer special - - 6.45 -
Wairarapa Building Society 8.60 7.15 6.85 -
Westpac 8.64 7.89 7.49 7.25
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.29 6.89 6.65
Median 8.64 7.45 7.37 6.77

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