Under-active RFAs may drop out
A large number of advisers are not working full-time and may take the chance to drop out when new advice laws kick in.
Tuesday, August 29th 2017, 6:00AM 
8 Comments
by Susan Edmunds
There are about 6,400 registered financial advisers currently in the market, who are required to register on the financial services providers register, be members of an external dispute resolution scheme and act with care, diligence and skill.
But beyond that they have few obligations.
Institute of Financial Advisers chief executive Fred Dodds said about 4,000 of those could be expected to be working in risk and mortgage advice.
"The FMA insurance replacement report said that there were 3,700 advisers who had more than one policy on the books and also in their report stated that in 2014 50% of them earned less than the minimum wage," he said.
"Now you could say that they are not advising but there will be a number who have mature books and spend the majority of their time servicing/advising on their in-force books but I suspect that there is another large number who are sitting on trails which also of course includes another anecdotal figure of around $1 billion - category one products - of FUM that RFAs continue to get renewal/trails on."
David Greenslade, of training provider Strategi, said he did not keep data but expected that about 20% of advisers might not be working full-time.
Russell Hutchinson, of Chatswood Consulting, said only about 200 advisers sold more than 100 policies a year each.
"There's a group of about 2,000 advisers that regularly use Quotemonster," he said. "In terms of being busy enough to do quotes."
He said it was fair to assume that about 2,500 were writing policies on a relatively regular basis. That means at least a couple of thousand are doing relatively little business. Depending on the requirements of the new regime, it may not be worth their time remaining in the industry.
Hutchinson said many of the people who were doing very little business could be happy to be nominated representatives for financial advice providers.
Some might not be advisers as most people would think of them, he said, but could be a bookkeeper or vehicle finance specialist who only needed RFA status from time to time.
He said it should be expected that there would be a drop in numbers when the new regime rolled out.
"The barrier to entry to be an RFA isn't very high. All you need to do is pay your fee and get a police check. There are lots of people who have only had to do that and have another connection with financial advice."
He said it was probably the intention of the rule changes that some would not remain in the industry
"We do not have any data on how many advisers are part or fulltime," a spokesman for the FMA said.
"In relation to life insurance, our report on replacement business published last year showed that of 3,700 advisers who had at least one active policy on their books, 31% had no more than nine policies, suggesting that there are certainly some advisers who have only small life insurance practices. However, as that exercise did not gather information about other products under advice, we can’t extrapolate from this finding to any more general conclusion."
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Comments from our readers
Plenty of commentators have made similar throwaway comments about existing RFAs choosing to be nominated representatives.
Unless I've completely misread the legislation, a nominated rep is going to be tied up tighter than an old-fashioned tied agent. [Understandable really when the FAP has a potential $5million a pop liability.]
A nominated rep will be only able to work for one FAP, and won't be able to be a FA on the side.
Their employer will have to control everything that their nominated reps do, think, say and advise.
It doesn't seem to me to be the place for anyone with a wish to show independent thought.
In short, I reckon a nominated rep will effectively be just a wind-up salesperson.
Here is my logic.
This is the legislation
431Q Duties of financial advice providers in relation to nominated representatives
A financial advice provider that engages 1 or more nominated representatives to give regulated financial advice—
(a)
must have in place clear and effective processes, controls, and limitations relating to the financial advice that may be given by its nominated representatives.....
With breaches by nom reps potentially leading to civil penalties of up to $5 million a pop for the FAP, I repeat my view that the FAP will have these people on a very very tight rein.
@David What services is the sole adviser FAP going to contract to the 3rd Party FAP?
I can't see that the former FAP could be a financial adviser linked to the 3rd party FAP.
I think though that your conclusion is right. A financial adviser operates under the licence of the closest FAP licensee to herself - i.e. her own FAP in this case.
As a corollary, I think a financial adviser can be linked to only 1 FAP.
But Wouldn't it be helpful if the designers of the scheme were allowed to comment in an Information Only way to keep our guesses in check.
Dear Murray, consider the whole range of RFAs. At one end of the spectrum there are "AFA-ready" people, keen on independence, offering full advice, and lots of choice of providers. They would never dream of becoming nominated reps. These are probably the advisers you know best. Whatever the law calls them, I call them financial advisers today, and I hope they will all be financial advisers tomorrow too.
But at the other end of the spectrum there _are_ RFAs who work in call centres, only sell for one company anyway. Or they have a main job, such as putting in finance deals, or bookkeeping and sell as little as one policy every couple of months, probably also just for one company. These are the people I am thinking of when I said that they would probably be happy to be nominated reps.
The market is large and diverse - although much of it may not count as advice in your view, they will need to be regulated in some way. They may offer little more than a pure sales function - but I would actually like to see them in the regime - not outside of it.
Best wishes, Russell H
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