Regulation Starts for Financial Advisers

The first day of July, 2011 marked the start of a new regulated era which should result in investors having greater confidence in seeking professional financial advice.    The era of a largely unregulated financial advisory sector has ended.

The Financial Markets Authority (formerly the Securities Commission) has the responsibility to oversee financial advisers.  All advisers who provide investment advice except to wholesale or habitual investors have to be registered with the FMA.  (www.business.govt.nz/fsp)  If the adviser gives advice on “complex” investments, termed Category 1 investments, then they must be authorised by the FMA. These advisers are termed “Authorised Financial Advisers”.  Complex investments are investments such as direct shares, managed funds, bonds etc.  KiwiSaver and Insurance Linked Investments and Superannuation products are Category 1 investments.

Category 2 products are considered less complex. They include life insurance, income replacement insurance, consumer credit contracts, call debt securities and bank term deposits. Advisers who only deal in these products are required to be registered, but do not have to be authorised. Often these advisers will be working for a QFE.

Financial advisers employed by companies that have been granted status as a Qualifying Financial Entity (QFE) by the FMA will not need to be individually registered or authorised if they only provide advice on their QFE’s own products. These will tend to be in-house branded products, such as for example the ABC Bank “Balanced PIE Fund”. The QFE must ensure that its employees and nominated representatives have the competence necessary to exercise reasonable care, diligence and skill in advising clients.

By law, financial advisers must put the investors’ interests first. Under the new regulations, if an investor feels aggrieved that they have been let down by their advisor and have been unable to resolve things directly with the adviser, they can utilise the free Dispute Resolution Scheme Service which the adviser must be a participant member of.

The new regime is a great step forward for the industry we have been working in for the past 17 years.  Now only those who meet the FMA minimum standards can legally work as a financial adviser.

Disclaimer

Steven Barton (FSP 32663) and Susan Pascoe Barton (FSP 32382) are Certified Financial Planners and Authorised Financial Advisers.  Their initial disclosure statements are available free of charge by contacting them on (07) 3060080 or they can be downloaded from www.pascoebarton.co.nz. This column is general in nature and should not be regarded as personalised investment advice.