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Closing the gaps: Licensed to advise

Need to learn more as the new regime approaches? Strategi Institute can help with that.

BY ALTAF SHAIKH, HEAD OF STRATEGI INSTITUTE

One of the biggest changes taking effect as we move towards the new financial advice environment is the installation of a licensing regime.

In practical terms, that means anyone giving regulated financial advice to retail clients must operate under a financial advice provider (FAP) licensed with the Financial Markets Authority (FMA).

This requirement goes for financial advisers who must be registered on the Financial Service Providers Register (FSPR), as well as nominated representatives (NRs) – individuals giving advice but with the FAP determining the sort of advice being provided and how it is provided.

Financial advisers can work for more than one FAP at a time, but NRs are tied to one only. It is worth noting that sole traders applying for a licence become a FAP themselves, and then need to adhere to the rules relevant to FAPs, rather than just those for financial advisers.

Duties for financial advisers and nominated representatives

Financial advisers and nominated representatives in the new advice world are required to adhere to certain duties. When dealing with retail clients, these include:

• ensuring clients understand the nature and scope of the advice being given, including any limitations (such as only being able to advise on certain products)

• complying with the Code of Professional Conduct for Financial Advice Services

• meeting competence, knowledge and skill standards

• prioritising the client’s interests if there is a conflict of interests

• complying with the new disclosure regulations

• exercising care, diligence and skill

• only recommending financial products that comply with the Financial Markets Conduct Act or regulations.

Obligations for FAPs

FAPs are required to take all reasonable steps to make sure anyone operating under their licence meets the duties listed above.

However, FAPs with NRs have extra responsibilities. They must have processes and controls in place to control the NR’s advice and the circumstances it is given under. They need to make sure the advice provided is in line with the NR’s competence, knowledge and skill, and monitor that advice to ensure compliance.

FAPs and financial advisers both need to be registered on the FSPR, while FAPs also need to be members of dispute resolution schemes, as well as having standard conditions of their licence they must meet. It is important to note that the penalties for failing to meet legislative requirements as a financial adviser, FAP, or NR are more severe in the new regime than the old.

A note about authorised bodies

An authorised body (AB) is simply an unlicensed FAP. It will usually be a company that employs advisers and operates under the licence of a FAP. ABs are required to register on the FSPR as a FAP and both the licence holder and the AB are responsible for the AB’s conduct, advice and actions, and for meeting all its obligations.

Need to learn more?

Strategi Institute’s half-day Closing the Gaps course is designed to provide all those who provide regulated financial advice to retail clients with the competence, knowledge and skill required to understand and apply the legislation, regulation and code that will be applicable from March 15, 2021. Perfect for closing your knowledge gaps.

For more information, please contact the team on 09 414 1300 or support@strategi.ac.nz

Strategi Group is the leading provider of compliance and training services for the New Zealand financial advisory industry.