Licensing insurance for financial advisers

Russell Hutchinson takes a whimsical look at what this kind of cover might offer.

Tuesday, October 13th 2020, 6:00AM

by Russell Hutchinson

Imagine you could get some insurance that meant if you hadn’t decided what to do by March 15, 2021, you wouldn’t lose your financial advice business? What might the terms be?

A whimsical look at the coverage could include:

1. Undecided – in the event that you couldn’t decide between setting up your own FAP or joining another, or even which to join if you had multiple options, this policy would extend your ability to practice, for up to two years.
2. Third-party failure – in the event that you signed a contract to act as either a Financial Adviser or Nominated Representative of a third-party financial advice provider (FAP) and for whatever reason they failed to obtain a licence, or failed for any other reason, this policy would extend your ability to practice, for up to two years.
3. Change of mind – you have done a deal to be either an NR of FA for a third-party FAP but you have suddenly got cold feet for any reason (whether due to their terms, systems, or any other issue), this change of mind clause works both in the event that you change your mind about them, or they change their mind about you, this policy would extend your ability to practice, for up to two years.

Likely terms:

1. You must be prepared to detail how you would meet the requirements of the full licence regime in order to qualify – in effect, to have a back-up plan on how you would offer financial advice, what systems you would use, and how you would meet standard licence conditions and the new financial advice code.
2. Adequate governance must be in place, including meeting the fit and proper person test.
3. A fee must be paid, and costs borne by the adviser for the above preparation.

Of course, you have probably guessed by now, the "insurance" is issued by the Financial Markets Authority and is otherwise known as a transitional licence.

It does have substantial costs – and you may prefer to pursue one of your other options (such as joining another FAP) but one thing is for certain: the FMA requires you to make up your mind.

Tags: FAP insurance licensing new regime Opinion Russell Hutchinson