Getting licenced to advise - The draft bill from MBIE
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Getting licensed to advise – The Draft Bill from MBIE
MBIE has released the draft Financial Services Legislation Amendment Bill and proposed transitional arrangements and Consultation Paper to gather industry feedback on the draft.The bill is the result of the Financial Advisers Act Review which MBIE started in 2015. The bill proposes to merge the Financial Advisers Act into the current Financial Markets Conduct Act, which as of December 2016, is now fully in force. This makes sense as we always believed that the financial markets conduct act should have come before the financial advisers act anyway and there is cross over for financial service providers.

The timetable for implementation is below:
As we expected last year at the Newpark PD Day, the following key changes are proposed:
  1. Labeling
  2. Sales versus Advice
  3. The Code Requirements
  4. Disclosure Standardized
  5. Licensing
So in two years time there will be no more AFA, RFA, QFE.  These could be replaced by;
  • Financial Advice Providers – Licensed
  • Financial Advisers
  • Financial Advice Representatives
Financial Advice Services will now be linked to a Provider not an Individual. Class Advice and Category 1 / Category 2 products, are Gone! This is replaced by the FMC Act definition of ‘financial product’, but also includes a DIMS facility, a contract of insurance, a consumer credit contract, any other product declared by the regulations.
Financial Advice Providers will be able to provide advice across the spectrum, provided they have demonstrated that they are competent to do so. All Providers will be subject to competence, knowledge and skill standards. These will be developed by a Code Committee following industry consultation, and then set out in a new Code of Conduct. Requirements will be determined through licensing.

The Code Committee will be required to consult on the standards that should apply to different parts of the industry. MBIE does not know whether the current AFA Level 5 qualification will be a requirement for some in the future. Those currently undertaking a Level 5 qualification may wish to continue, as this is likely to be considered as part of the transition to the future regime, but there may also be other ways, such as workplace assessment, to determine competence, so you can hold off making any decisions if you want.

For AFAs they should have an easier pathway to meeting any future requirements. Transitional period for getting a financial advice provider licence will take into account AFA’s most recent authorisation renewal.

For RFAs they will need to comply with competence, conduct and client care standards under the act and relevant regulations and operate under a financial advice providers licence.

Transitional arrangements are yet to be determined, but will allow RFA’s sufficient time to demonstrate competence and move into the new regime.

Disclosure will be simplified, (Hopefully)

They want to achieve shorter documents that only include the information consumers want and need to know to make good financial decisions.

They should be easy for the adviser to explain and consumers to understand, and must be equally effective through different advice channels.

One key area of concern though is the designations, Financial Adviser and Financial Advice Representative (FAR). Both must operate under a Financial Advice Provider License, but the obligations and transparency are very different.  The FAR won’t be individually registered on a public register and won’t be individually accountable for their advice or conduct. Their advice services will be limited and the license holder will be fully responsible. We believe this creates an issue where individuals could hide under this regime and potentially move from license to license without any transparency. This would be a bad outcome.

We therefore believe the draft could address this by having two types of licenses. Financial Advice Providers License and a Financial Product Distributor License. Product providers who manufacture products should only have a distributor license which clearly states that product advice and information are the limits of their services and sets the obligations of the entity and their advisers/distributors.  Advisers under this license should be classed as distributors and not advisers. This could also cover the majority of Robo-Advice services.

Anyone wanting to be a Financial Adviser is licensed under a Financial Advice Providers License. Each adviser under this license is individually registered for the types of advice they give (any or all the ones listed above) in the products and/or services they cover. Then consumers would know when they see the word Financial Advice they are dealing with a licensed adviser who is individually responsible.
So, what should you do now?

Firstly, if you want to have your say on the draft bill then you need to hurry because it must be in by the end of March 2017.

Secondly, we are telling our clients to start thinking about the future of their business. What types of advice, products and clients do they want to be dealing with in the future?  If they can clearly articulate what they want their business to look like in three years’ time, then when the bill is passed and the obligations released we will be able to provide them with a pathway to the best structure under the new regime.

If you have any questions please feel free to contact Newpark or IDS directly to discuss.

Now time for a martini, shaken not stirred.

Barry Read – Managing Director IDS
Copyright © 2017 Newpark Financial Services, All rights reserved.

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