Adviser Regulation Key Points

Is your financial adviser trading legally?

Another key milestone was reach on 1 July 2011 when the Financial Advisers Act (2008) came into full effect.

Financial advisers are regulated by the Financial Markets Authority who will be responsible for enforcing the new legislation and ensuring that all advisers comply.  Advisers must be registered and those who provide investment advice must also be authorised.  Those who do not meet these minimum standards are not legally allowed to operate their business or provide advice to clients - and those that do run the risk of incurring substantial penalties.

Financial Service Providers Register
A public register – the Financial Service Providers Register - is available at www.fspr.govt.nz where you can search for an adviser, or their firm, who you may be considering dealing with. The register provides details of the adviser, their status, the financial services they are qualified to provide advice in and the disputes resolution scheme they belong to.

Types of Advisers

• Authorised Financial Adviser - These advisers have the highest qualifications and professional standards and can advise on the widest range of products, including more complex products such as investments, unit trusts, managed funds, superannuation and KiwiSaver.

• Qualifying Financial Entity Adviser - These advisers can also advise on investment products but they are restricted on the products they can use and can only provide advice on the Qualifying Financial Entity’s own product.

• Registered Financial Adviser - These advisers will typically provide advice on more simple products such as insurance products, mortgages and bank term deposits.

Financial advisers must have a current understanding of your financial situation, goals, objectives and tolerance for risk and therefore your specific circumstances become an essential consideration in the advice your adviser will provide. 

As your personal circumstances change over time, what was right for you a few years ago may no longer still be appropriate today, therefore it is vital your adviser continually reviews your situation against your changing circumstances.  Clients will invariably be asked to provide updated information on their circumstances and may also be asked to sign additional compliance related documentation. 

Two Disclosure Statements
The new regime now requires advisers to provide clients with both a Primary Disclosure Statement and a Secondary Disclosure Statement.   

• Primary Disclosure Statement contains fundamental information to assist you in deciding whether to use the adviser’s services and is very prescriptive in format to comply with the Act.  

• Secondary Disclosure Statement is more comprehensive and contains information about the type of financial services the adviser can provide (including limitations if any), fees payable, remuneration the adviser receives and any material conflicts of interest.

Disputes and Complaints
Registered advisers must belong to one of four approved dispute resolution schemes. This is designed to be the mechanism for resolving any issues you may have with the service you receive from you adviser. Whilst complaints about an adviser’s conduct can be made directly to the Financial Markets Authority, you should firstly raise your concerns with your adviser.

How Does All This Affect Me?
All advisers now have a statutory obligation to act with care, diligence and skill.  This provides you with an increased level of confidence that your adviser meets the relevant standards imposed by the legislation and is looking after your best interests.

It may however mean the cost of seeking financial advice will invariably increase in time, as there is now increased responsibility on the adviser to follow a structured process and adhere to the legislation – with significant penalties for non compliance. 

The days of advisers providing adhoc advice at a BBQ, function, dinner party or other social occasion about what you or your friend/son/neighbour etc should do in a particular situation is no longer possible.  That person will now need to seek advice from a suitably qualified professional so their personal circumstances are considered by the adviser and the advice is tailored to their individual situation.

So before you choose a financial adviser or put any further business with your current adviser,  check their status on the Financial Service Providers Register.  That way you know you are dealing with a reputable adviser that is prepared to abide by the new regulations and is looking after your best interests.

Still Need More Information?
Additional information can be found on the following websites:
www.fma.govt.nz   Financial Markets Authority (the regulatory body for enforcing the legislation)
www.fspr.govt.nz   Financial Service Providers Register (to check the status of an adviser)