1 Comment 1 CommentThe first transitional licences are being issued for financial advice providers who will work under the new financial advice regime, either as individuals or entities engaging financial advisers and nominated representatives.
MBIE has put out two new fact sheets, dealing with the prospect of one adviser dealing with multiple FAPs, and interposed persons.
The Financial Services Legislation Amendment Act allows for licensing conditions to prohibit financial advice providers engaging a financial adviser who is also engaged by another FAP.
Licensing conditions may be imposed either by the Financial Markets Authority, or through regulations developed by MBIE, to prohibit particular types of arrangements if concerns arise with regards to how these arrangements are impacting on consumers.
MBIE said it was not currently considering this but it could happen if there was potential for consumer confusion.
FAPs considering engaging advisers who worked with other FAPs would need to examine how they made it clear who was responsible for the advice given, which provider was responsible for each stage of the process, and how disclosure would show that.
They would also have to consider how the duties they have under the Financial Markets Conduct Act would be regulated.
FAPs are required to take all reasonable steps to ensure the individuals they engage to give advice comply with the duties in the Act, such as the adviser code of conduct. Breaches can result in fines of up to $600,000 for an entity.
They would also need to consider how they could be exposed to reputational damage from an adviser engaged by another FAP, MBIE said. There could be implications for professional indemnity cover, too.
MBIE also sought to clarify the rules for interposed persons – where a FAP engages advisers indirectly through other entities to give advice on their behalf – such as advisers working for an advice business dealing with a FAP.
An entity can only engage another entity to give advice on its behalf or engage other advisers through a second entity if it is authorised to do so by a licence condition.
“Those who have a pre-existing arrangement with another entity can engage individuals through interposed persons under their transitional licence if the other entity will have their own financial advice provider licence or will be an authorised body under a licence,” MBIE said.
“The FMA will provide guidance on applying for full licences closer to the opening date of June 29, 2020."
Lawyers at MinterEllisonRuddWatts said the fact sheets helped to clarify the regime.
“In our experience, however, these areas continue to be complex and require careful negotiation to ensure your chosen advice structure is robust, compliant and fit for purpose.”
Download the papers here:
Can financial advisers be engaged by multiple FAPS?
Engaging individuals through interposed persons to give financial advice
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If it is a dealer group as the FAP, then the client has an advice contract with the Dealer Group and the Financial Adviser giving the advice is either a FA direct to the FAP, or an FA under an Authorised Body.
If the advice being given is different to the advice of the originating FAP then this is an interposed person/body relationship. I.e. The FAP is a mortgage broker referring to another FAP for Insurance advice. The Mortgage FAP is not compliant for Insurance advice either, which is why it is referred.
The client is still the client of the Originating FAP with responsibility there and the interposed FAP is responsible for their aspect of the advice, and everyone involved is on the hook.
Where this structure issue becomes a real issue is with the client's understanding of who is giving the advice.
If the client is unaware that the FA under an AB is giving the advice on behalf of a Dealer Group FAP, then that is potentially going to be considered misleading.
Regardless of what the disclosure documents hide in the fine print.