Financial Markets Authority warns 700 financial advisers at risk of breaking the law July 1. Is your financial adviser legit?

By Amanda Morrall

The financial services sector could be cleansed of 700 known practitioners who have yet to get their paperwork in order to become compliant with new regulations on investment advise.

The Financial Markets Authority (FMA), in a statement released today, said 700-plus advisers had yet to complete the mandatory competency requirements necessary to continue dispensing advice on KiwiSaver, managed funds and other investment products.

So far, only 600 financial advisers have won the official designation of Authorised Financial Adviser (AFA).

Officials with the FMA's predecessor, the Securities Commission, originally projected that 5,000 would become AFA's in New Zealand while  the Institute of Financial Advisers suggested a more realistic number would be 2,000 to 3,000 by next month. (See article by Amanda Morrall here).

Under the Financial Services Provider Act, which comes into full effect July 2011, financial advisers who give investment advice must transition to become Authorised Financial Advisers, a designation which requires compulsory exams, registration, proof of competency and assessment.

FMA director of financial adviser regulation Mel  Hewitson said the proximity of the deadline and the preparation time required to become compliant meant that as many as 400 practitioners were at risk of being forced out of business. (See earlier article by Amanda Morrall on FMA policing efforts here).

“Nearly 400 of those need to do an assessment which can take three to five weeks to get through. It’s clear they’re running the very real risk they won’t be authorised in time.”

Hewitson said FMA staff were working to ensure that existing applications were processed in time for the July 1 deadline.

“We’ve set 17 June as our target date to process those advisers who have done the work and sent in full and complete applications. That gives advisers time to notify their clients they can continue offering investment services.”

Hewitson said this would be the final public warning to advisers at risk of flouting the rules and that those who were found to be in breach of the law would be sanctioned accordingly.

For a list of Authorised Financial Advisers, see the  FMA's website here.

Three-tier system for advisors

The new regulatory regime lays out a three-tier system of financial advisors: Authorised Financial Advisors (AFA), Registered Advisors (RAs), and Qualified Financial Entities (QFEs).