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Fears any new licensing regime will be onerous

Independent authorised financial advisers may be the ones to feel the biggest pain if changes suggested in the Financial Advisers Act review options paper are enacted, it has been suggested.

Thursday, December 3rd 2015, 6:00AM 8 Comments

by Susan Edmunds

The paper, released last week, details three potential packages of options, from relatively minor changes to the existing law through to extensive rewrites.

The tone of the proposal seems to indicate the Ministry of Business, Innovation and Employment is keen to emulate the approach of the Financial Markets Conduct Act.

It discusses licensing adviser businesses rather than the advisers themselves, and giving them regulatory responsibility for their employees.

One adviser who did not want to be named said that would be harder on smaller AFA businesses than many other market participants.

“It’s business as usual for QFEs because they are already licensed but the poor old AFAs have to go through the mill again, this time licensing their entities.”

It seems likely that people who are currently registered financial advisers will also have a host of new requirements, including ethical and competence obligations, as well as the need to license their businesses.

The options paper said that would extend the efficiencies of the current QFE model.

If its suggestion of "expert" financial advisers who could handle more complex matters was introduced, they would then be subject to another level of licensing.

The adviser said, if that was the track the Ministry intended to go down, it would make sense to define financial advice as a financial product and scrap the Financial Advisers Act altogether.

He said it seemed that although MBIE said it was consulting widely, there were only two things not decided on – whether all advisers should be subject to the requirement to put clients first and whether there was a need to distinguish “expert” advisers.

The issue of exemptions for accountants, lawyers and some journalists, which many advisers have objected to, seems set to remain.

“They are no more consulting than they are flying to the moon.”

Tags: Financial Advisers Act

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Comments from our readers

On 3 December 2015 at 8:57 am Brent Sheather said:
This is all standard stuff for the Ministry of Investment Banking. The MIB is first and foremost a political institution and as we all know most of the politicians are in the pockets of the QFE’s whom they aspire to work for once they get voted out. In this context “consultation” with anyone other than their QFE masters is just an annoying process that they have to go through. The ultimate goal is of course to maximise their own wealth and the profitability of QFE’s whilst continuing to tell the public that their interests are being put first. The problem with weak regulatory institutions, as an Australian academic argued the other day in respect of the Australian financial system, is that they foster systemic corruption. Good luck NZ.
On 4 December 2015 at 3:05 pm Murray Weatherston said:
I wonder where the option that FAs should be licensed through their entities has come from.

One cornerstone of the Financial Advisers Act in both the original Bill and the vastly changed Act was that passed AFAs would be individually authorised - so all AFAs had to jump the hoops to get their AFA.

I can't recall any specific question in the issues paper that raised that issue. Q62 was the closest, but it did not use the words "licensing of entities".

To calm the paranoid, I have had a quick squizz at the banks' submissions on Q62, and found that none of the banks argued for entity licensing.

Can any one of the crowd who reads Good Returns throw any light onto where the push to get rid of individual authorisation and introduce entity licensing for all comes from?
On 4 December 2015 at 3:05 pm Sceptical said:
Brent - you completely undermine your more sensible comments with this type of conspiracy theory rubbish. While I agree that QFE's tend to have a disproportionate voice in these debates, this is primarily due to their ability to effectively engage and put their perspective across, rather than due to corruption in the public sector. From where I sit, the Ministry has gone out of its way to try to engage effectively with the breadth of the financial adviser sector, which is not an easy task.

Yes, Ministers will be lobbied by commercial interests and there are issues with regulators hiring too many staff from the big end of town and vise versa. However, in my experience these issues don't extend to the core public service. Policy advisers don't tend to come from an investment banking background, and don't tend to get jobs there after working for the government.
On 4 December 2015 at 4:14 pm Brent Sheather said:
Hi Sceptical

I hope you are right and it is just conspiracy theory rubbish however I will share with you one little experience I have had with the public sector and corruption therein. About a year ago a senior banker made a silly comment in the Herald. I rang a government department to get the Chief Executive’s comment on the banker’s comment. I spoke to the Chief Executive’s secretary and he said “I’ll get her to ring you back”. Before she phoned me back the senior banker phoned me and said I hear you are writing a story about what I said and if you do expect legal action. No one knew that that story was being written indeed I had hardly started it but it transpired that the secretary had previously worked for the senior banker and had rung the banker even before he talked to his boss. His boss, when I told her about that, then admitted what had happened and apologised to me for her subordinate’s action. This is one small illustration of the problems that can occur when you have lots of movement between government departments and industry.

Regards
Brent
On 7 December 2015 at 9:50 am dcwhyte said:
Conspiracy theories apart, the suggestion of licensing adviser entities is bizarre.

This introduces another layer of complexity to the regime, cost to the advisory industry, and risk to the consumer, that previously had been avoided.

There is a strong school of thought in Australia that now prefers the individual licensing regime over the Dealer Group model, as Individual licensing requires all advisers to be qualified at a minimum standard level.

Bell Gully and KPMG are not licensed entities - it is the practitioners within those entities who hold the practice licenses - the same requirements should apply to financial advisers.

If you agree, please make specific reference in your response to the MBIE Options Paper.
On 7 December 2015 at 10:28 am R1 said:
Sceptical - Your comments of how difficult it is to widely consult while commercial interest freely lobby and that there are issues with regulators hiring from the big end of town trivialise what are clearly major issues in getting a fair deal for retail investors. How can a senior government politician be appointed to a senior role in the industry after "reforming" the laws and regulations around the financial industry? Why is the FMA quick to prosecute individuals and yet banks mis-selling products are simply told they need to improve their practices? Why do the politicians allow themselves to be lobbied? Why is the political donations system NOT transparent? "In god we trust, everybody else must bring data." The circumstantial evidence is very concerning and coupled with the facts that you yourself point out should make us all sceptics. I smell a rat(or two).
On 7 December 2015 at 2:02 pm AFA Muggins said:
Can anyone answer a question: if the FMA has a revolving door policy, in which there are QFE staff seconded to working in the FMA, or QFE contractors working within the FMA at times?
On 7 December 2015 at 4:00 pm gavin austin adviser business compliance said:
I'm not sure of the relevance of your question to this topic but yes over the last 5-6 years there has been a number of secondments from the "big end" of town (QFEs). ANZ and AMP at various times and occasionally people from PWC etc. They were there for anything from 6 months to a year and then back to the QFE or where ever they came from. They may well still have some on staff at the present time. I'm a bit out of touch with that sort of stuff now.

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