Financial Advisers: NZ to create three classifications of adviser
David Mayhew, New Zealand's Commissioner for Financial Advisers says that "The Code of Professional Conduct will impose professional demands which will be new to many advisers and will impact directly on their business practices."
"Release of the draft Code will also assist businesses that employ financial advisers to decide whether they have the capacity to be qualifying financial entities (QFEs)," Mr Mayhew says. "QFEs are eligible for streamlined regulatory arrangements but must ensure their advisers operate professionally by reference to standards equivalent to those contained in the draft Code."
The new law provides for three classifications of financial adviser:
* Registered Financial Advisers (RFAs)
These are registered only. RFAs can advise only on a narrow range of financial products called 'category 2 products'. They include bank term deposits, call debt securities, credit card products and insurance products excluding life insurance products issued since 31 December 2008. RFAs are not bound by the Code of Professional Conduct but like all financial advisers they are required to act with care, diligence and skill and not to mislead clients. They must belong to an approved dispute resolution scheme.
* Authorised Financial Advisers (AFAs)
In addition to being registered these advisers need to be authorised by the Securities Commission. AFAs can provide a financial planning service for clients and advise on more complex investments or 'category 1 products' including securities such as shares and managed funds, any estate or interest in land and futures contracts. To become authorised they must demonstrate that they meet minimum standards of professionalism including competence, knowledge and skills, client care, ethical behaviour and continuing professional training. AFAs have to comply with the Code of Professional Conduct.
* Qualifying Financial Entities (QFEs)
These are businesses that have been registered and granted QFE status by the Securities Commission. They must have the capacity to take responsibility for the conduct of the financial advisers they employ. Advisers who work as employees or 'nominated representatives' of a QFE can advise on the company's own products - subject to Parliament passing the Financial Service Providers (Pre-implementation Adjustments) Bill currently before the select committee - or 'category two' products from other providers without being individually registered and authorised.
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