No safe harbour for new advisers

Advice firms wanting to recruit new advisers could have a new hurdle once the new regime takes effect.

Wednesday, January 17th 2018, 6:00AM

by Susan Edmunds

The incoming Financial Services Legislation Amendment Bill requires all advice businesses to be licensed, starting with a transitional license, before full licenses are required two years later.

Transitional licenses allow a firm to continue to provide the type of financial adviser services they were able to provide under the current regime, without needing to satisfy any new competency requirements introduced by the new code of conduct.

The Ministry of Business, Innovation and Employment confirmed that a new adviser entering the industry between the start of transitional licensing and full licensing could join a firm with either a full or transitional licence.

“However, the new entrant financial adviser will not be covered by the competency safe-harbour; this means they will need to meet the relevant competence, knowledge, and skill standards as set out in the new Code of Conduct before they can give financial advice.”

Barry Read, of compliance firm IDS, said this could be an issue for those looking to hire.

“Most people choosing to enter an industry will find out what is required to enter the industry and I would imagine that anyone looking to join from November this year will do the same," he said.

"Firms with transitional licences will have to ensure their adviser recruitment and training programs are in place and meet the code requirements. This will be interesting as firms may only have from August to November to ensure they have these in place and that they meet the requirements. How they will ensure they meet the requirements without FMA approval could be an interesting part of the transitional process."

Scott Black, chief executive of Share, said he expected the same rule to apply to an existing adviser who picked up a new strand, such as a risk adviser wanting to get into KiwiSaver advice."They would have to meet the competency requirements from the start. That might not be too onerous, as they can study the KiwiSaver requirements whilst they continue to do risk sales."

He said new advisers could come into the industry under an existing adviser, in a mentoring capacity while they met their requirements. "Logically, they would look to meet those requirements in one discipline only, and add additional skills once they are under way," he said.

"As is the old days, potential new adviser could stay in their existing jobs/careers, and do the competency requirements after hours. Once they have met the requirements - again probably being mentored by a more experienced adviser - and are confident of their chances of survival, they could resign their old job and start in the new career. Some of the larger groups may develop a hot-house approach with new advisers spending, say, two weeks in a group learning environment to gain the required competencies."

He said there would be more time and care taken to ensure groups were investing in the right sort of people, with the greatest chance of success, "There will probably also be a number of learning organisations lining up to develop and help fast-track new adviser training solutions. Change always creates an opportunity for someone."

Commentator David Whyte said an apprenticeship model made sense and was consistent with the evolution of an emerging profession. "Unqualified doctors, lawyers, and dentists don't handle clients or patients before they have the necessary skills to do so."

Tags: compliance conduct David Whyte financial advisers Financial Services Legislation Amendment Bill IDS MoBIE recruitment Share