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Warning for would-be providers

Advice firms planning to apply for a license as a financial advice provider may need to think twice before they adopt a model that relies on nominated representatives.

Wednesday, September 6th 2017, 6:00AM

Under the new financial advice legislation, advice will be able to be given by financial advisers, financial advice provider firms and their nominated representatives.

It has been suggested that some larger financial advice groups and dealer groups might seek a financial advice provider license to lessen the compliance burden on their members.

But that may come with liability concerns.

Kensington Swan’s financial markets experts said there were a number of things to consider for firms making that decision, including the extent to which financial advice was part of their client value proposition, the way they delivered it to clients, the individuals they wanted to have providing financial advice on their behalf and the extent to which they wanted to be able to control that.

“The regulatory hurdle you currently need to jump to set yourself up as a provider of wholesale and/or generic financial adviser services, or as someone who employs financial advisers, hardly requires you to lift a foot. Register on the FSPR, pay some relatively modest fees and levies, and you are pretty much done," they said,

"Track forward to the new regime, and that’s all going to change. The hurdle to providing financial advice services in the retail space is about to get a whole lot higher. More strategic thought about playing in that space, and how best to go about it, is required.”

They said it would no longer make sense for people to be registered to provide financial advice “just in case”.

“Those that have previously just dabbled around the edges of financial advice have to decide whether they are in or out – dipping your toes in the financial advice waters in the future will carry with it a hefty regulatory burden."

Those who became licensed financial advice providers would also have to consider how much of their advice would be given by individually licensed and independently accountable financial advisers, and how much would be done by nominated representatives.

“Liability and the extent of your control over the advice process will be key considerations,” they said.

“Commentary to date suggests that the more you are reliant on nominated representatives to deliver financial advice on your behalf, the more extensive your policies, procedures, and controls will need to be. FMA will look to see these demonstrated during the licensing process. It’s also possible that licence conditions might limit the type of financial advice nominated representatives can provide.

"The full extent of those consequences will not be known until FMA has developed its licensing guide. However, what seems clear for now is that developing a nominated representative-reliant model is making yourself a potentially uncomfortable bed to lie upon, even without taking into account the increased risk of exposure to penalties that arises when using nominated representatives.”

Tags: financial advisers Financial Services Legislation Amendment Bill FMA FSPR regulation

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