Simon Power pledges solution for category 2 advisers
Commerce Minister Simon Power has pledged to find a solution to the confusion that has erupted after changes to proposals for the regulation of mortgage brokers and financial advisers.
Thursday, June 17th 2010, 5:20AM 
7 Comments
by Jenha White
Mortgage and insurance industry leaders have become furious over the changes after discovering that they could be barred from seeking authorisation under the Financial Advisers Act.
Industry estimates suggest that over 3,300 advisers who have started training courses to prepare for authorisation might be turned away.
A spokesperson for Commerce Minister Simon Power said that the Minister was "working on a solution".
The Minister is currently in the United Kingdom and his office said that he would be looking at the issues and speaking to officials on his return.
He hopes to make a further statement early next week.
The Securities Commission says it is unclear on whether mortgage brokers and insurance advisers will be able to get authorised if they only advise on category two products.
Angus Dale-Jones, Securities Commission director supervision says the legislation does not state that it is not possible for those advisers dealing purely with category two products to get authorised, but there is also no authority given for the Commission to grant authorisation.
“There is no clear path for insurance advisers or mortgage brokers.”
Section 55 of the Financial Service Providers (Pre-Implementation Adjustments) Bill says if an applicant for authorisation is eligible, the Commission must authorise that person in respect of one or more of the following for a specified period:
(a) providing any financial adviser service, or specified kinds of financial adviser services, in relation to any category 1 product, specified category 1 products, or specified classes of category 1 product
(b) providing a discretionary investment management service on behalf of clients, generally or in specified cases, in relation to any category 1 product, specified category 1 products, or specified classes of category 1 product
(c) providing investment planning services generally or in specified cases.
This means unless an insurance adviser or mortgage broker has an investment component to their business, there is no clarity as to where they stand.
Professional Advisers Association (PAA) chairman Peter Leitch says this is a complete turnaround from the message it received from the Government that all categories of financial advisers needed to be authorised in the public interest.
He says the amendment legislation urgently needs to be altered to allow insurance and mortgage advisers the voluntary option of becoming authorised financial advisers (AFAs), if they so choose.
“Right now, the Securities Commission has no power to allow this.
“We are simply saying that for those who want to continue the professional path beyond registration and become AFAs, then they ought to have this choice.”
Leitch says the PAA went to considerable effort to produce ‘A Friendly Guide to Education for Financial Advisers’ specifically to help members and other participants in this industry to qualify en route to authorisation.
“At the eleventh hour, why would the Government deny those who have incurred major educational costs and devoted hours of time – and are continuing to do so – the option to become an AFA?
“The whole industry has already invested millions of dollars and thousands of hours in advance of this legislation. It cannot be in the public interest that this goes to waste.”
The New Zealand Mortgage Brokers Association (NZMBA) chairman Darren Pratley says he has told the Select Committee the Association’s happy with the revised changes but it is disappointed that the opportunity to be an AFA has been taken away after all the work, money and effort thousands of mortgage brokers and insurance advisers have put into the authorisation process.
He says the NZMBA is currently involved in discussions with the Ministry of Economic Development, as well as liaising with the Securities Commission, lawyers and other industry groups.
Life Brokers Insurance Association president Ron Flood says all advisers should complete their study even if they are not required to be authorised as their level 5 qualification will be an external confirmation of their knowledge and competence.
“It is a pity that advisers only started to study with a 'legislative gun' to their heads. It is something they should have started years ago.”
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
| « Over 3,300 mortgage & insurance brokers can’t voluntarily become AFA’s | Officials didn't ask for regulatory changes » |
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The legislative path to follow is actually s 13B of the Financial Sevices Providers Pre Implementation etc Bill which repeals the original s 55 of the Financial Advisers Act and replaces it with the wording in your story.
It is crystal clear to me that this new section authorises Sec Com to authorise only with respect to category 1 products and investment planning services.
Also, it seems to me that (vested interested) people encouraging pure insurance and/or mortgage brokers who have started study to continue with study to get the Certificate should be pausing to reflect whether NZQA is going to allow the same alternative qualifications as the Code Committee - it is just possible that for the purposes of the Certificate in isolation, a candidate must complete all all unit standards. This could be shattering news for someone who thought they would get exemption from some of the standards.
I think here is little chance that NZQA has even turned its mind to this matter.
Interestingly though, the wording says what the regulator must approve (under paragraph 1 of the new clause 55) an adviser to be authorised for one of three things - all investment/Category 1 related.
Nowhere does it prevent an adviser seeking authorisation for a Category 1 product (e.g. Kiwisaver) and then running a practice entirely devoted to Category 2 products.
So in practical terms there is no doubt that this less-than-perfectly worded part of an otherwise excellent fix-up document leaves room for a bit of confusion and doubt. But that is all. A bit of applied thinking - which we are all capable of with enough time to digest all this information - seems to suggest that the process of attaining authorisation got a bit dogmatic perhaps. But that's about all.
And given there is still a little bit of the process left before it becomes law you'd have to be willing to bet that this will get fixed to remove the doubt.
The entire drafting, submission, consultation, re-drafting process has been interminable and frustrating for everyone involved. And I KNOW you have been as frustrated as me often enough enough. But in the main the policymakers and regulators have been good at listening and responding to make the law workable along the way.
I'm willing to bet that they will do so here too.
The intent is unchanged. The outcry from adviser associations WANTING the right to become AFA's is excellent for the entire industry, and I feel will be listened to.
Even if it isn't though, I believe that a risk-based adviser could still get through the process of becoming an AFA (albeit with investment qualifications that they may not choose to use post-authorisation).
Professionalism is about standards and process and behaviour. I do not believe for a moment that the policymakers want different playing fields on those issues throughout the industry.
Under what the rules looked like they would have been before the Commerce Committee reported back, that same pure insurance and/or mortgage broker would have been looking to pass Standard Set E, and not even looking at Set D.
Now prima facie standard set E should be deleted from the Code. They can stay for the Certificate but they seem totally irrelevant for investment advice regulation.
Are these insurance/mortgage advisers (apart from a pointy-headed minority) going to voluntarily do even more study for a licence that they do not need?
Also since an AFA will be subject to more stringent regulation than a mere registered service provider advising only on insurance and/or mortgages, who would really willingly sign up for that?
It looks like Code Committee might have to revisit alternative qualifactions wrt CLU and ALU. Prima facie, they shouldn't be recognised for an investment AFA.
I looks like the new phrase is "plus ca change, plus ce n'est pas la meme chose."
Is it asking too much to ask all the regulators in the mix (Commissioner, Securities Commission, Code Committee, ETITO, MED, Companies Office, Ministry of Consumer Affairs, Minister Power and....) to put out an URGENT update paper saying where things are and what is the new timetable for each of the ingredients.
I think I have a reasonable handle on these things but freely admit I am still very confused. Until the final shape of the regulations is set in stone, I am going to ignore all the advice floating around to act early. I am going simply to wait.
Are the Dec 1 2010 date for registration and June 2011 date for full implementation of authorisation stil realistic and fair? Or do the various regulators need to stop for a cup of tea while they figure out exactly what they are trying to achieve.
Why would a risk-focussed professional adviser choose to become an AFA anyway?
* The standards applying to AFA's will become the "consumer protection benchmark" (that's straight from the Bill), so the Code will apply on a de facto basis as the behavioural standards to all advisers.
* The "brand" of AFA will get public promotion by regulators and create the consumer perception that there are professional advisers called AFA's, then the others. I wouldn't want to be perceived as less professional, and nor will many others, so AFA branding makes commercial sense.
* Smart career-orientated advisers will be wanting to ensure that they stay ahead of the game when it comes to professional standards - you never want to be the guy operating right on the minimum standards as that is who regulators apply most attention to - so it is logical to expect that advisers even in Category 2 products will in a few short years have further professional standards imposed (in terms of professional development and education), and regulators will not want a "competing brand" out there confusing punters, so the path will be AFA.
* Educational requirements always rise, they never go backwards. For example, a Dip Bus undertaken 15 years ago was 6 papers, it is now 8 papers. A diploma was satisfactory for CFP in Australia 2 years ago, in 3 years time it will be expected to be a degree. Conclusion? The standard to attain AFA will never be easier than currently.
* AFA provides more commercial choice for the adviser who wishes to run a non-aligned business. More business lines to choose from, less institutional control, more autonomy.
That's just a few reasons why a Category 2 adviser might want to be an AFA immediately.
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Can anyone enlighten me on where this is specified, or how the inference has been drawn that non-investment financial advisers CANNOT be AFA's?