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FINANCIAL ADVICE
Frequently Asked Questions

Q1:What should advisers do in anticipation of the implementation of the Financial Advisers Act?

A: The top priority for advisers is to get their skills and competence up-to-date.

Precise competence requirements for prospective authorised financial advisers will be known once the Code Committee has developed the Code (expected by late 2009 or early 2010). In the meantime, the competence standard recently developed by industry and ETITO is a good starting point for advisers who do not have a track record of systematic continuing professional education and a relevant qualification. For more information, see the Staff Paper on Authorised Financial Adviser Competence issued on 20 April 2009.

Prospective authorised financial adviser applicants will need to register and be authorised during 2010. In some cases, advisers may need to have their competence assessed. Detailed arrangements and dates for these processes will be published later in 2009.

For employees and agents of major financial institutions or other entities likely to become Qualifying Financial Entities, speak to your Human Resources department about the training they offer adviser staff. In many cases, large organisations are already in discussion with the Securities Commission about their training plans in anticipation of the new legislation.

For other advisers, speak to your professional association about whether you need to take steps to update your professional skills and competence. In most cases professional associations are in discussion with the Securities Commission.

Q2:How do I work out what competence level will apply to me?

A: Competence levels for Authorised Financial Advisers have yet to be set by the Code Committee as a requirement contained in the Code of Professional Conduct.

All advisers - not only AFAs - have an obligation to exercise reasonable care, diligence and skill. Speak to your employer or professional association about what steps you should take to ensure that you comply with this obligation.

Q3: What should organisations do in anticipation of the implementation of the Financial Advisers Act?

A: Organisations that employ advisers should familiarise themselves with the Financial Advisers Act and the provisions that apply for Qualifying Financial Entities.

In summary, QFE status is available to organisations which satisfy the Commission that they have the organisational capacity to discharge a range of compliance obligations, including the obligation to ensure their adviser staff and agents exercise reasonable care, diligence and skill.

Commission staff have been informally consulting prospective QFEs over recent months and issued a public discussion document on Regulating and Supervising Financial Advisers that includes material on QFEs in order to obtain industry views on key aspects of proposed QFE policy.

It is anticipated that the first applications for QFE status will be processed from late 2009.

The Financial Advisers Act, including the QFE provisions, will not be fully operational until late 2010, allowing QFEs adequate time to put in place any processes or other requirements arising from the terms and conditions of their QFE status.

Q4: What should professional associations do in anticipation of the implementation of the Financial Advisers Act?

Most adviser professional associations have been in regular contact with the Securities Commission over recent months. Any professional association that does not have an ongoing relationship with the Commission should establish one now.

Q5: What is the process for developing the Code of Professional Conduct for Authorised Financial Advisers?

A. The Financial Advisers Act requires the Commissioner for Financial Advisers to establish a Code Committee. The Committee, comprising 10 members, was appointed by the Commissioner for Financial Advisers in July 2009.

The Code Committee will draft the Code of Professional Conduct for Authorised Financial Advisers. The Code must provide for minimum standards of professional conduct that must be demonstrated by authorised financial advisers, including minimum standards of competence. It is anticipated that the Code will be drafted by early 2010.

Q6: Where can I find a copy of the Financial Advisers Act?

A: Financial Advisers Act 2008 - www.legislation.govt.nz/act/public/2008/0091/latest/DLM1584202.html and
Financial Advisers Amendment Act 2009 - www.legislation.govt.nz/act/public/2009/0024/latest/DLM2231143.html.

Q7: What is the Financial Service Providers (Registration and Dispute Resolution) Act?

A: The FSP Act is partner legislation for the Financial Advisers Act - see www.legislation.govt.nz/act/public/2008/0097/latest/DLM1109427.html. The FSP Act deals with the public register for advisers (and other financial service providers) and with the disputes resolution arrangements that advisers will need to put in place.

The Financial Advisers Act deals with adviser professionalism, including among other things: the Code of Conduct, adviser skills and competence, what advisers must disclose about themselves to their clients, and arrangements for managing conflicts of interest.

Q8: What are Category 1 and Category 2 products?

A: The categories are based on the level of complexity of the product. A Category 1 product is a security, any estate or interest in land, a futures contract or any other contract specified by the regulations. A Category 2 product is less complex than a Category 1 product and includes a call debt security, a bank term deposit, an insurance product*, a consumer credit contract^ or any other product specified by the regulations. Category 1 and 2 products are described in section 5 of the Financial Advisers Act. Advice on Category 1 products, which includes most securities, must be provided by an authorised financial adviser.

* Excluding a life insurance policy issued after 31 December 2008
^ As defined in section 11 of the Credit Contracts and Consumer Finance Act 2003

Q9: Who are Authorised Financial Advisers (AFAs)?

A. Generally, any person who is registered as a financial adviser, is of good character and who meets the levels of competence specified in the Code is eligible to be authorised by the Securities Commission. Authorisation is required for financial advisers who provide a financial planning service. It is also required for individuals who give financial advice or make investment transactions in relation to Category 1 products.

Q10: What are Qualifying Financial Entities (QFEs)?

A. QFEs are entities registered and granted QFE status by the Securities Commission. To grant QFE status, the Securities Commission must be satisfied that the entity has the capacity to discharge a range of ongoing compliance obligations under the Financial Advisers Act, including the obligation to ensure its employees and agents exercise care, diligence and skill. The law provides some regulatory and compliance efficiencies for QFEs, for example exempting certain categories of their staff members from the need to be individually registered as a financial adviser. The Securities Commission issued a discussion document that included staff views on policy relating to QFEs. This is available at www.seccom.govt.nz/publications/documents/regulating-financial-advisers.

Q11: What is financial advice?

A. The Financial Advisers Act 2008 covers people who are in the business of giving financial advice, making investment transactions or providing a financial planning service. For the purposes of the Act, people give financial advice if they make a recommendation, or give an opinion or guidance in relation to acquiring, holding or disposing of a financial product.

Q12: What is registration?

A. The Financial Service Providers (Registration and Dispute Resolution) Act 2008 will establish a compulsory public register of financial service providers, including all financial advisers. All financial advisers must be registered. Authorised financial advisers must be registered and authorised.

Q13: What is the role of the Commissioner for Financial Advisers?

A. The Commissioner - a member of the Securities Commission - is responsible for appointing members of the Code Committee and for reviewing the Code they draft. The Commissioner is also the chairperson of the disciplinary committee and will exercise a range of other functions under the Financial Advisers Act.

Q 14 What is the disciplinary committee?

A Disciplinary Committee will be established to conduct disciplinary proceedings arising out of complaints regarding authorised financial advisers once the Act is fully implemented late in 2010.

Q15 What is ETITO?

ETITO is the industry training organisation for the financial services industry. For more information about industry training and ETITO's role see the Securities Commission Staff Paper on Authorised Financial Adviser Competence.

See also

- Introduction
- For consumers
- For financial advisers
- For the financial sector
- For education institutions
- Consultation