Regulatory Changes, a Continuing Saga

On the 11th of June the Commerce Committee introduced more major changes to the adviser regulatory regime in its proposed amendments to the Financial Service Providers (Pre-Implementation Adjustments) Bill.  This included narrowing authorisation to just those offering personalised investment advice to retail clients. 

 

There will be a prohibition on people calling themselves an AFA (Authorised Financial Adviser) or a financial planner or investment planner if they are not authorized.

 

Advisers only offering insurance advice will no longer need to become authorized.  They will not need to produce an Adviser Business Statement, nor meet the training requirements of authorization, or comply with the new Code of Conduct.  Mortgage brokers, provided they do not offer or give advice on any investment will also not need to be authorized.

 

This seems rather illogical.  In order to produce an insurance plan a needs analysis needs to be done.  Having adequate insurance cover is an integral component of protecting a client’s financial health.  Similarly, detailed knowledge of client’s finances and their financial goals are required in order to be able to recommend the most suitable mortgage package to a client.

 

Why would you want to do business that could have a significant impact on you or your family with someone who may not have any qualifications in insurance or mortgages? Perhaps the answer is to only deal with an adviser or broker who has chosen to become authorized.

 

A very high percentage of insurance policies and mortgages are issued by the major trading banks.  Most of their staff are not sufficiently qualified to meet what were the proposed authorisation requirements.  However, Banks will need to be Qualifying Financial Entities.  Because of this their staff who only deal with Category 1 products (examples include term deposits, life insurance) will need to comply with the Code of Conduct.  Bank investment advisers as they deal with Category 2 products will have to become authorised.

 

Advisers have until the end of the year to register in order to begin the official registration process.  They will then have until the 30th of June 2011 to complete the authorisation process.

 

Government officials still do not have a firm indication of the numbers of people that they will have to authorise.  Advisers face significant costs to complete the authorisation process, and it seems that few are willing to pay the high fee costs any earlier than required.  There could well be such a deluge of last minute applications that the registration process will not be able to be completed in time.