Sovereign warns its advisers against complacency

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Sovereign is cautioning its financial advisers to resist the temptation to scale back their qualifications following a proposed easing of regulation requirements.

Friday, June 11th 2010, 3:10PM 3 Comments

New draft legislation released today by the Commerce Select Committee, which is responsible for the Financial Advisers (Pre-Implementation) Bill, will give some financial advisers the option to operate under a slightly less stringent regulatory model.

Under the proposed changes to the Financial Advisers Act, advisers who deal solely in Category 2 financial products - which include residential mortgages and term insurance - will be able to take a step down in their industry registration status.

Previously, many of these advisers were required to be Authorised Financial Advisers (AFA) due to the broad interpretation of Financial Planning Service. This meant they were subject to a Code of Professional Conduct which outlines minimum standards of ethical behavour, client care, competency, knowledge and skill.

Under the new legislation they may only need to be Registered Financial Advisers (RFA). This means they cannot offer services except in respect of Category 2 products and are not technically subject to the Code of Conduct (although this might change in future).  However, minimum standards of ethical behavour, client care, competency, knowledge and skill are still required.

Sovereign GM Marketing and Product, David Drillien says the business is encouraged by the government's willingness to take on industry feedback and respond accordingly, but admits the timing of the announcement is surprising.

"Good regulation is a good thing and it is pleasing to see the government responding to industry comment.  While we understand the rationale, we would have preferred to have the ability to respond to this announcement several months ago, when deciding how Sovereign could best support advisers to comply as AFA's."

Drillien warns advisers against settling for a less qualified role.  "We strongly caution against risk or mortgage advisers automatically defaulting to an RFA position. The reality is that being an RFA will restrict your scope of services and there are benefits to being an AFA. Advisers need to consider what services they wish to offer their clients now and in the future.

"Whilst is some areas, the obligations for RFAs is less that AFAs, this doesn't not necessarily mean that becoming an RFA is an easier route. RFAs still need to have robust processes and systems in place to professionally manage their business under a regulated environment and they need to demonstrate ‘care, diligence and skill'." Sovereign understands that the Securities Commission's starting point on what defines ‘care, diligence and skill' is full compliance with the Code. RFAs not complying with the Code may need to explain why in the future.

Sovereign is urging all its advisers to continue to seek financial services training, regardless of which model they choose to operate under. The company has recently entered a partnership with the Open Polytechnic to provide its advisers with training towards a National Certificate in Financial Services (Level 5).

"We recommend that all our advisers hold this qualification, or its equivalent," says Drillien.

"Our programme is the best training offering on the market. It will give advisers - and their clients - the confidence that they have the skills and knowledge the industry and the government demand.

"The training programme is part of our commitment to ensuring our advisers are the best informed in the industry and adhere to the highest possible standards of professionalism.

"Sovereign remains committed to taking an industry-leading position to ensure the Act's objectives of professionalism, integrity and public confidence are realised."

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