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QFE models needed former regulator says

The need to change the designations applied to different groups of financial  advisers is one issue where there is some consensus in the review of the Financial Advisers Act. There needs to be change.

Thursday, July 9th 2015, 6:00AM 4 Comments

by Susan Edmunds

Many industry players want to see a change to the current model of RFA, AFA and QFE advisers.

IFA chief executive Fred Dodds said a recent survey of members showed concern about the different adviser designations, especially the status of advisers within QFEs.

But AMP general counsel Elaine Campbell, former director of compliance at the FMA, said it was a structure that was necessary in New Zealand’s market.

She said QFEs needed to take their responsibilities for the compliance of advisers seriously.

“But from the regulator’s perspective, I think that in a market the size of New Zealand and with the funding that the FMA has, it would not be possible for the FMA to directly have a regulatory relationship with all the people within the QFE who have an advice contact with clients.

"They are just not funded to do that. From that point of view, it’s a sensible model for a market such as New Zealand.”

She said it was similar to models that worked in other countries, such as Australia.

In Australia entities rather than individuals are licensed to provide financial advice through their representatives.

The FAA review issues paper, prepared by the Ministry of Business, Innovation and Employment, acknowledged concerns about the QFE model..

"We frequently hear from some advisers that there is a perception that the QFE model allows financial institutions to get away with applying lower standards than those facing AFAs.

“This perception may be exacerbated by the lack of transparency about the specific requirements applying to each QFE. However, the model does provide QFEs more flexibility to monitor their own advisers and individual QFE advisers have less direct responsibility for the advice they provide."

The facts:

  • There are 56 entity groups that have QFE status, including insurers (31%), banks (18%), non-bank deposit takers (18%), lenders (15%), and fund managers (13%).
  • About 35% of AFAs work within a QFE and there are estimated to be another 23,000 non-AFA advisers in QFEs. They can offer personalised advice on category one products issued by their own QFE.

Tags: Financial Advisers Act QFE

« Getting to know... Elaine CampbellLVR restrictions to be reviewed »

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Comments from our readers

On 9 July 2015 at 10:26 am Charity said:
Of course Elaine Campbell would take the position that it wasn't possible to regulate the advisers within a QFE.

She was head of the department within FMA that was in charge of monitoring the QFEs and now she has a plumb job with one of the QFEs.

There have been numerous complaints about the overreaching of QFEs in having staff members getting customers to transfer their KiwiSaver to a QFE without the customer even knowing that a transfer had taken place.

Obviously the QFEs aren't regulating themselves very well and FMA isn't monitoring the QFEs very well.

There's been a very light touch when it comes to monitoring QFEs.
On 10 July 2015 at 11:15 am RiskAdviser said:
Clearly there's noise that QFE's are not managing their advisers well, some of the behaviour I have seen by QFE advisers has been very interesting too, but not sufficient for any real action to be taken.

I have a background with investment products, kiwisaver and superannuation and I'm not confident I can get it right for clients so I stay clear of investments and find an expert who does.

What is very scary is the last point, 23,000 non AFA advisers in QFE's able to give advice on Category 1 products. If that doesn't concern anyone in authority we have a problem. No wonder clients have a poor perception of the industry, the 4,500 is it? AFA's get drowned out with this many potentially unqualified people able to advise on Category 1 products.

Charity I'd suggest a light touch is somewhat understated.
On 25 July 2015 at 10:02 am w k said:
hope it's not late to bring this up re: qfe. this only happened this week.

i was asked to quote on a residential ppty. as it was a big ppty i requested for a valuation for ins. which has not been done yet. however prospective client says the bank already quoted a premium of $1900+ (excess $5k). i have a domestic client whose ppty was insured for $1.2m and the premium come up to $2,200 (excess $500).

how was the bank able to quote on the ppty without the valuation for ins.? i later learnt from the prospective client the bank base the cover on the market valuation report - improvement value of the ppty was about $2.5m.

it turn out that the replacement value base on the valuation for ins. done is $3.2m

I believe that any ppty insured above $1m will have to be referred to insurer and a valuation for ins. is required.

question:
- why was the qfe, the bank in this instance, exempted from this requirement?
- is the qfe, the bank, doing the right thing in the interest of the client?
- why are practices of advisers almost always treated with suspicion (i admit there are a few dodgy ones in our midst) while qfes get away with such practices?

of course, i lost this prospective client. i believe i am not alone in this. sigh ...... i feel all the useless fees i paid is no different from paying protection money to mafias.

On 25 July 2015 at 10:18 am w k said:
oh i should also mention. the cheapest rate i've got base on the $5k excess and with the most inferior of the policy terms compared to the rest of the quotes i've got was more than double the bank's rate.

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