Entity licensing 'boosts risk'
Entity licensing could increase the risk of undesirable behaviour from vertically integrated product providers, one commentator says.
Wednesday, October 11th 2017, 6:00AM 
4 Comments
by Susan Edmunds
David Whyte, former general manager of AIA in New Zealand, managing director of AIG Life in Australia and now a consultant and director in the industry, said the Financial Services Legislation Amendment Bill and accompanying new code of conduct for those offering advice would change many of the business models operating in the market.
Instead of individual authorisation of advisers and registration, everyone giving advice will have to be connected to a licensed entity. It has been indicated that this will reduce the compliance burden on some businesses.
But Whyte said it could end up being a more difficult process than some expected.
“Now is the time to start thinking about it. Having been through the process in Australia with licensing there, it comes up very quickly even though you think you’ve got time.”
He said organisations that had salaried employees might have less to do to meet their new compliance obligations.
“Entity licensing still has some major potential for bad behaviour. We can see it happening in Australia.”
He said “errant behaviour” seen in licensed firms in Australia, including mis-selling of financial products, could be repeated here if entity licensing led to a more hands-off approach from the regulator.
“But that’s what we’ve got. We have to live with it and keep a wary eye out on those that are not complying in a timely fashion with proper behaviour and best practice. It’s all very well the FMA saying it is getting impatient with product providers not meeting best practice but they have got to do something about it.”
Whyte said he was struggling to see the difference between a financial adviser and a nominated representative in practice. “They are in no more a position of clarity than they were before the review took place. There’s the same confusing initials being bandied around and hey mean nothing to consumers.”
Nominated representatives will deal with less of their own compliance requirements.
The option to become a nominated representative operating under an entity license would appeal to those who wanted to be guided in their compliance requirements, Whyte said, or who wished to have their own licensed entity that adopted suitably compliant processes.
“You can have a financial adviser who decides to sell one product and a nominated representative who has an approved product list. How is the consumer meant to identify between the two? How does the consumer fare in the legislation?”
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Fortunately it is never too late to do the right thing, particularly when the business you work for might soon be sold to a new institution less enamoured with the banksters of this world. For me personally that was the most shocking instance of bad behaviour I have ever seen by the regulator. Yes they have done lots of good things and most of the really bad players have left town. The polo shirt comment however suggests that the FMA has little real appetite for substantively reforming the behaviour of the “good guys” which is very sad because the good guys inflict 99% of the damage on retail investor outcomes. If we do have a change of government I would urge all financial advisers to make contact with your local Labour/Green/NZ First MP urging change so that all client’s interests are put first and we have a level regulatory playing field.
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I suspect this is a significant contributing factor behind many of the vertically-integrated financial services entities who are currently running the ruler over their wealth management divisions, and whether a continued involvement is in their best [personal???] interests going forward… and it’s not just the banks!!! Insurance companies find it easier to debate the grey-zone around insurance and payouts, than the relatively binary expectations of investments