Opinion: Where risk comes from

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A really good discussion paper on regulations for the new Financial Advisers Act has come out, and it's stirring up a good deal of debate. Here are just two strands of the tangled web.

Wednesday, July 8th 2009, 5:21AM 1 Comment

by Russell Hutchinson

One view runs like this: How can a company say the advice given to a client that recommended its product has nothing to do with them?

If the product and the advice combined fails to provide an adequate solution for the client, and the client decides to sue - who is the right target?

Is it the adviser, with few assets who made a tiny sum of money from the sale (relatively speaking), or the company with large resources that made a big sum of money from the product?

The other view has it: How can a company take responsibility for an adviser operating as an independent business, using processes of their own design, and recommending a range of companies and products?

How can they enforce the use of certain advice-giving rules or systems when the adviser will be seeing clients almost anywhere, a long way from the prying eyes of the company's compliance managers?

The first situation pretty much describes the problem with life insurers standing back, folding their arms, and saying to advisers: "we're a wholesaler, you get registered or authorised."

Sure, they might help, but it's your risk.

The second example describes the problem with companies adopting qualifying financial entity (QFE) status and trying to supervise a bunch of independent advisers.

There are, of course, solutions. But you'd be a fool not to spot the problems - as an adviser you will soon be asked how much risk you are prepared to take to retain your independence.

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