Adviser exodus smaller than expected

The predicted mass outflow of financial advisers from the industry hasn’t happened, and the low hurdle for registered financial advisers may be the reason, according to Sovereign chief executive Charles Anderson.

Thursday, March 29th 2012, 6:00AM 3 Comments

by Niko Kloeten

When the Financial Advisers Act was introduced several pundits said it would prompt large numbers of advisers to either change industry or retire, given that many were in their late 50s and early 60s.

Anderson said that had often been the case internationally when new regulations were introduced, but the experience in New Zealand so far has been different.

“We thought there would be a big exit of advisers from the industry because it would all get too hard for many of them… I think that hasn’t happened,” he said.

“That’s probably because the Registered Financial Adviser set of regulations is not that draconian – it’s really not a significant, insurmountable step to get registered as an RFA.”

However, he said there had been an increase in RFAs “valuing their business and seeing what they can do with it.”

Becoming an Authorised Financial Adviser is “a bit more challenging” and also involves a significant financial cost for many advisers, Anderson said.

“There are some people for whom it’s cost between $80,000 and $100,000 in terms of lost income to go through the training process to become an AFA. That’s just through days off and lost business. But I think if it gives the public confidence then that’s a good thing.”

Qualifying Financial Entities (QFEs) also play a key role in the new regulatory environment and Anderson said Sovereign was the only product manufacturer that had established a QFE for nominated representatives.

“We set out to establish a QFE for nominated representatives as well [as employees] principally because there was a lot of uncertainty prior to the Act that advisers didn’t quite know how this would pan out for them,” he said.

“They didn’t know how rigorous the enforcement might be and what the liabilities might look like if they transgressed. There was a whole lot of uncertainty and we’ve taken a lot of that away from them.”

Niko Kloeten can be contacted at niko@goodreturns.co.nz

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Comments from our readers

On 29 March 2012 at 12:12 pm Nick said:

Are there actually any numbers or are we relying on conjecture and finding out how Sovereign offers NM options for advisers through its QFE?

On 30 March 2012 at 10:15 am Independent Observer said:

The reduction of financial advisers from 5,000/7,000 to a little over 2,000 could justifiably be referred to as a mass outflow as predicted.

It would also be useful to understand how it has cost some people between $80,000 and $100,000 in terms of lost income to go through training process to become an AFA – as this is the first that I’ve heard of this.

On 30 March 2012 at 4:29 pm Sydders said:

mmmm

Is Pot and kettle appropriate here.

Sovereign are now saying the bar is quote low for advisers. At one stage in this journey they said they would support advisers reach the bar and as a show of goodwill their distribution exec would do the relevant exams.

Could good returns ask Sovereign execs such as Mr Haak to confirm whether they did this? If the bar is low as Mr Anderson claims surely this was done as indicated.

Or is this another case of someone who is not an adviser who is not doing the exams commenting on the bar being low even though they have not cleared it themselves.