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Industry demands details

The financial advice sector has been left puzzled by the role of nominated representatives in the new financial advice regime, how they will work for Financial Advice Providers, and how consumers might complain about them, should they need to.

Wednesday, August 23rd 2017, 6:00AM 5 Comments

by Susan Edmunds

Under the new rules, dictated by the Financial Services Legislation Amendment Bill, licensed financial advice providers (FAPs) will be able to have nominated representatives working for them.

These representatives will not have to be licensed and the FAP will have liability for their compliance.

In a recent update, the financial services team at law firm Kensington Swan said there were still a lot of questions about the nominated representative classification.

“This is the new regime’s equivalent of a QFE adviser. They don’t need to be registered in their own right, but must operate under the umbrella of a financial advice provider licence,” they said.

“Concerns raised in the consultation process about the lack of transparency and individual accountability of this group have not been addressed. Nominated representatives will be neither civilly liable for contraventions nor liable for regulatory disciplinary action or penalty. The onus will fall on the financial advice provider to make sure nominated representatives behave.”

PAA chief executive Rod Severn said there was a lot of clarification required.

“We have argued all along that no matter who you are, if you are giving advice, you need to be accountable. Regardless of what you are called, advice is advice and that advice can either set you up for a better future, or ruin you,” he said.

“The public need a response and a plan from the regulators and providers that clearly spells out the differences between what an adviser can offer and what a nominated representative can offer. One is choice, the other not so much."

His counterpart at the IFA, Fred Dodds, agreed.

“This will certainly highlight the need for very transparent disclosure to a client right at the outset and it will be fascinating to see the 'wizardry' with words that will be possibly concocted to paint a picture of someone who is able to give regulated financial advice and comply with all of the sections 431H to 431O but not be liable.”

Lawyer Sue Brown said she did not think that there was automatically a problem due to a lack of accountability. But the detail of the rules was yet to be seen.

She said there was potential for confusion when it came to complaints. Nominated representatives are not required to be members of an external disputes resolution scheme under the new structure.

“How that works in practice I don’t think is yet understood.”

She said it would be the representatives who gave advice and knew their way around the paperwork, and would know what they took into account with clients.

Susan Taylor, chief executive of dispute provider FSCL, said her organisation was still working through the ramifications.

“There's also a provision in the bill that financial advisers won't have to be a member of a scheme, provided that the FAP they're engaged by is a member of a scheme. That is – presumably - because the FAP will have to assume responsibility and liability for any complaints that may be made against one of their advisers. This was a new addition to the bill.”

READ MORE: New legislation may give advice industry new life

Tags: financial advisers Financial Services Legislation Amendment Bill Fred Dodds FSCL IFA PAA QFE Rod Severn Sue Brown

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Comments from our readers

On 23 August 2017 at 7:09 am Murray Weatherston said:
I don't understand what the issue raised above about complaints and EDRS is.
Under FSLAA, the licensee is the entity (FAP). FAs and NomReps will give advice on behalf of their FAP, not themselves.
If a client has a complaint, they will simply make it against the FAP.
I see nothing that says licensed entities will not be required to be a member of a EDRS.
So logically there is no need for either a NomRep or a FA to be a member of an EDRS from say 1 May 2019 when the new regime is expected to begin.
The EDRS charging model might have to change as there will no longer be individual adviser membership
On 23 August 2017 at 7:40 am Murray Weatherston said:
Nominated representatives
I also don't see why the sector is puzzled about the role of nominated representatives.
All licensed entities will theoretically be able as part of the licensing process to ask for permission to hire nominated representatives. I think of NomReps as programmed human robots who will be told by their employer what to do, say and advise in any given circumstance with no freedom to depart from the given script.
My guess is the hurdle will be set very high for the right to have NomReps so I don't expect any small adviser practice to be given such permission. It will be the preserve of the big boys and girls.
I don't agree that the concerns raised in the submission process have not been addressed. They haven't led to an amendment, but they will have been considered; it's just the Government has made decisions which do not accept those submissions.
I actually agree with NomReps not being subject to the competency requirements of the new Code in front of FADC. Given the lack of freedom to depart from the script, it doesn't make any sense to even consider the personal competence of a NomRep. They are not "advising" in the sense we "proper" advisers would use the term - they are simply deliverers of whatever advice their master has determined they will deliver. We might say the nominated representatives are in practice going to be much more like salespeople for their employers' products.
The FAPs' lawyers will figure out the form of disclosure that nominated representatives will give their buyers that will keep the NomRep safe under the cloak of advice that is a fundamental (but IMO seriously flawed) foundation stone of the new regime.
How sad for the consumer.
On 24 August 2017 at 4:28 pm dcwhyte said:
There is still a lot of water to flow under many bridges before everything is settled for those in the industry.

However, Murray hits the nail on the head with his last sentence - how on earth the consumer is expected to understand who is saying what to him/her and why just beggars belief. While Murray's explanation is succinct, the very fact that there are experienced industry practitioners expressing uncertainty indicates that clarity has not been achieved.

There are so many variations in the types of relationship structures - particularly in the non-AFA space - I wonder if the wordsmiths behind the Bill fully understood the scope of the issues they were seeking to address.

And to Murray's point about NomReps being like salespeople - are pure product sales included in the definition of regulated advice?
On 24 August 2017 at 4:51 pm Murray Weatherston said:
You ask "are pure product sales included in the definition of regulated advice?"
In a word NO.
Someone please correct me ASAP if I'm wrong.
On 24 August 2017 at 5:12 pm dcwhyte said:
So product sales are not caught by the provisions of FMCA (as amended) and product sales people will not be subject to the Code of Conduct?

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