Entity licensing benefits no one: Whyte

Financial advisers and their clients would be left worse off if the Financial Advisers Act moves from a system of individual licensing to entity licensing, one commentator has suggested.

Tuesday, December 15th 2015, 6:00AM 3 Comments

by Susan Edmunds

The recently-released options paper for the review of the Act signals that the Ministry of Business, Innovation and Employment would like to see a move to an entity licensing regime similar to the approach of the Financial Markets Conduct Act.

That has prompted concern from those who fear it will mean more work for small adviser businesses.

Industry commentator David Whyte, former managing director of AIG Life Australia and general manager of AIA in New Zealand, said there did not seem to be many benefits for consumers or advisers in such a move.

He said some entities might not apply the rules to their members as strictly as others.

“Consumers could be exposed to risks they currently don’t face. This late addition of entity licensing at best dilutes the individual licensing regime, and at worst, creates more risk for the consumer than exists currently."

He said there were no benefits to the industry, either.

"If, as a practice owner, I have a team of AFAs – or qualified Financial Advisers post-FAA review – why would I seek a license for the practice and accept increased personal and professional liability?

"If one member of the team goes rogue – as has already happened in the dealer group licensing structure in Australia – then that individual bears the consequences. What is the commercial and/or consumer advantage to diluting the individual licensing regime?"

He said it would add another layer of regulation and expense to the industry without any benefit to consumers.

It was a case where New Zealand should not follow Australia’s lead, he said.

“There have been a number of cases in Australia where rogue advisers have been sheltered by the entity licensing regime.”

Whyte said the QFE structure worked for product salespeople but not financial advisers.

"There's nothing inappropriate about that, their function is to sell products. But advisers’ function is to advise."

He said the move would do nothing to boost consumers’ opinion of financial advisers.

Tags: David Whyte financial advisers Financial Advisers Act

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Comments from our readers

On 17 December 2015 at 10:24 am Murray Weatherston said:
Hi David
The headline - "entity licensing benefits no-one" - is wrong because your universe was limited to just consumers and advisers.
I want to share a recent personal light-bulb moment with you - the universe includes the regulator. I believe the regulator is totally overwhelmed by the thought of having to individually authorise or license another 5000+ Financial Advisers (current rbnaFAs (commonly referred to as RFAs) and QFE advisers. They will need to do this if in future there is only one big class of FAs.
Ergo - entity licensing! Simple really.
On 17 December 2015 at 3:36 pm MPT Heretic said:
You might be right Murray although based on the FMA's extraordinary ability to crush the original number of AFA's under the compliance burden and cost, the number of FAs left for them to licence and monitor post the next wave of change may be substantially less than you think
On 19 December 2015 at 11:31 am dcwhyte said:
As perceptive as ever Murray. The epiphany of regulator benefit had already shone its light in Albany - discretion persuaded against inclusion.

Those retained by QFEs would be exempt from individual licensing as their obligations are to the QFE, therefore the numbers would be considerably reduced.

The questions remains, however, is the regulatory regime intended for the benefit of the consumer or the convenience of the regulator?

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