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Changes were made to the Financial Advisers Act by Parliament on 23 June 2010. As a result, the following material is currently under review by the Securities Commission.

FINANCIAL ADVICE
Frequently Asked Questions

New legislation
Q: What is the Financial Advisers Act?
Q: What is financial advice?
Q: What is the Financial Service Providers (Registration and Dispute Resolution) Act?
Q: What is registration?
Q: What are category 1 and 2 products?

Financial Advisers
Q: Who are Authorised Financial Advisers (AFAs)?
Q: How can potential AFAs prepare for the implementation of the Financial Advisers Act?
Q: When can advisers apply for authorisation?
Q: Where do advisers apply for authorisation?
Q: What does authorisation cost?
Q: What is ETITO?

QFEs
Q: What are Qualifying Financial Entities (QFEs)?
Q: What are the benefits of becoming a QFE?
Q: Do QFE employees who are financial advisers have to comply with the Code of Professional Conduct?
Q: How can potential QFEs prepare for the implementation of the Financial Advisers Act?
Q: How should QFEs submit their Adviser Business Statement ?

Code of Professional Conduct
Q: What is the process for developing the Code of Professional Conduct for Authorised Financial Advisers?
Q: What is the role of the Commissioner for Financial Advisers?
Q: What is the disciplinary committee?

New Legislation

Q: What is the Financial Advisers Act?

A: The Financial Advisers Act (FAA) 2008 aims to promote the sound and efficient delivery of financial advice and to encourage public confidence in the professionalism and integrity of financial advisers.

The new law requires financial advisers to be competent, and to be accountable for the advice they give, while some advisers must comply with a Code of Conduct. The law requires disclosure by financial advisers so investors and consumers can make informed decisions about whether to use their services and follow their advice.

A pre-implementation bill, which is currently being considered by the Commerce Select Committee, will make some necessary adjustments to the new regulatory framework before it becomes operational.

The Act will come fully into force on 1 July 2011.

To see the Financial Advisers Act and subsequent amendments and proposed amendments to it, go to:
www.legislation.govt.nz/act/public/2008/0091/latest/DLM1584202.html
www.legislation.govt.nz/act/public/2009/0024/latest/DLM2231143.html
www.legislation.govt.nz/act/public/2008/0097/latest/DLM1109427.html?search=ts_act_financial+service+providers_resel&p=1

Q: What is financial advice?

A. The Act 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. Providing factual information only about a financial product, in the absence of any recommendation, opinion or guidance, would not be considered financial advice.

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

A: This Act is partner legislation to the Financial Advisers Act. It establishes a compulsory public register of financial service providers, including financial advisers dealing in category 1 and category 2 products. A financial service provider is anyone who provides or offers to provide a financial service. Section 5 of the Act specifies what financial services it covers.

This Act also requires all financial service providers dealing with the public to be a member of an approved dispute resolution scheme or a reserve dispute resolution scheme which will be managed by the Ministry of Consumer Affairs. This will give investors and consumers access to a complaints procedure for issues relating to financial services that is independent, fair, accountable, efficient and effective. Individual advisers will be covered by their employer's scheme membership.

The Act will be fully operational from 1 December 2010.

To see the Financial Service Providers (Registration and Dispute Resolution) Act, go to: www.legislation.govt.nz/act/public/2008/0097/latest/DLM1109427.html?search=ts_act_financial+service+providers_resel&p=1

Q: What is registration?

A. Under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 (FSPA), financial service providers must be registered in order to legally conduct business. Registration will open on in July 2010 and will be overseen by the Registrar of Financial Service Providers. The Registrar will have the power to prosecute financial service providers who are not registered after the FSPA comes into force on 1 December 2010.

Registration will be available online at the Financial Service Providers Register. The process is intended to be straightforward and simple. The Register will be operated by the Companies Office, part of the Ministry of Economic Development. It will be publicly accessible and searchable - consumers and investors will be able to check whether a person or business is registered, their contact details, and what financial services they can legally provide.

Registration and information about the register are at: www.fspr.govt.nz

To see the Financial Service Providers (Registration and Dispute Resolution) Act, go to: www.legislation.govt.nz/act/public/2008/0097/latest/DLM1109427.html?search=ts_act_financial+service+providers_resel&p=1

Q: What are category 1 and 2 products?

A: The categories are based on the level of complexity of the product. Category 1 products are securities (for example shares and many types of investment products), any estate or interest in land, and futures contracts. Category 2 products are generally less complex and lower risk. They include bank term deposits, call debt securities, insurance products*, and consumer credit contracts**. Category 1 and 2 products are described in section 5 of the Financial Advisers Act. In future additional products can be added by regulations.

Generally, advice on Category 2 products must be given by registered advisers and only Authorised Financial Advisers can give advice on Category 1 products. However, if advice on category 2 products is given as part of providing a financial planning service, then the adviser must be authorised.

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

Financial Advisers

Q: Who are Authorised Financial Advisers (AFAs)?

A. Under the new law, financial advisers who give investment advice on category 1 products, make an investment transaction in relation to a category 1 product or provide a financial planning service will need to be authorised to operate by the Securities Commission. They will also need to be registered (see What is registration?).

Authorised Financial Advisers (AFAs) will have to comply with a Code of Professional Conduct so investors can expect minimum standards of competence, ethical behaviour and client care. They will be monitored by the Securities Commission and they (or their employer) must belong to a dispute resolution scheme.

Prospective AFAs can register and apply to be authorised in one process from July 2010.

Q: How can potential AFAs prepare for the implementation of the Financial Advisers Act?

A: There are many things financial advisers can do now to get ready for the new regime.

• Understand your obligations under the Act - read it and know what you have to do, see www.legislation.govt.nz/act/public/2008/0091/latest/DLM1584202.html?search=ts_act_financial+advisers+act_resel&p=1
• Read the Draft Code of Professional Conduct for Authorised Financial Advisers, see www.financialadvisercode.govt.nz
• Update your professional skills and competence. As a start, check your level of competence against the standards in the National Certificate in Financial Services (Financial Advice) (Level 5) revised by ETITO, go to www.afacompetence.org.nz.
• Use the online competence evaluation tool developed by ETITO to establish your competence needs and any further training requirements, go to www.afacompetence.org.nz/self-evaluation-tool
• Gather materials and prepare evidence (such as your files) for competence assessment against ETITO Level 5 standards - get your "house" in order!
• Think about how your processes and controls meet the requirements of the Act and Code.
• Read the Commission staff paper on Regulating and Supervising Financial Advisers see www.seccom.govt.nz/publications/documents/regulating-financial-advisers

Also see the Commission's AFA "Get Ready" Checklist

Q: When can advisers apply for authorisation?

A: Key dates for AFAs are:

• July 2010 - registration and applications for authorisation open at the Financial Service Providers Register www.fspr.govt.nz
• 1 December 2010 - Financial Service Providers (Registration and Dispute Resolution) Act fully in force and applications for authorisation need to have been submitted
• 1 July 2011 - Financial Advisers Act fully in force

Advisers are encouraged to register and apply for authorisation as soon as possible so that they are "in the system". They don't have to complete their competence assessment first.

By 1 December 2010 every financial adviser has to be registered and belong to an approved dispute resolution scheme. This is also the date by which advisers need to have applied to the Securities Commission for authorisation.

After 1 July 2011 advisers can only provide a financial planning service or advice on category 1 products if they are an Authorised Financial Adviser, unless they are covered by a QFE.

Q: Where do advisers apply for authorisation?

A: Individual financial advisers can apply for authorisation by the Securities Commission from July 2010 on the Financial Service Providers Register (FSPR) www.fspr.govt.nz

Authorisation and registration are separate requirements but both are applied for in one seamless process on the FSPR.

The FSPR is a public, searchable online register of financial service providers, including financial advisers, who operate in New Zealand.

The register opens on in July 2010 and advisers need to be registered and apply for authorisation by 1 December 2010.

The sooner advisers apply for authorisation, the better, to ensure they are licensed to practise in the new regime.

Q: What does authorisation cost?

Proposed fees for authorisation of financial advisers and QFEs are in addition to registration fees.

These fees will be collected by the Companies Office as part of the authorisation application and renewal process.

The above fees do not include assessment and examination fees for financial advisers charged by ETITO, Delegated Assessment Organisations (DAO) or other training providers.

It is likely that AFAs and QFEs will also be required to pay an annual levy to cover the cost of the Securities Commission's ongoing regulation of the financial adviser profession.

For registration fees see FAQs at www.fspr.govt.nz

For ETITO assessment fees see www.afacompetence.org.nz/news-publications/

For more information see Cabinet paper "Financial Service Providers and Advisers Regulations:Fees" link this to www.med.govt.nz/templates/MultipageDocumentTOC____42556.aspx.

Q: What is ETITO?

A: ETITO is recognised by government and industry as the national standards setting body for the financial services industry under the Industry Training Act 1992. In this role, ETITO develops national standards of competence, manages training arrangements and provides skills leadership to the financial services industry.

At the request of the Code Committee ETITO has revised the National Certificate in Financial Services (Financial Advice) (Level 5) to set the new minimum standards of competence and skills required of Authorised Financial Advisers under the new regime. It has reviewed two investment specialist unit standards (25648 and 25649) contained in the qualification and introduced two new residential property lending unit standards. ETITO is also developing a new unit standard based on knowledge of the Code of Professional Conduct that will be compulsory for AFAs.

The Code Committee has agreed that ETITO will have a key role in assessing the competence of financial advisers against required standards and is working to ensure that training is available throughout New Zealand for financial advisers who require it. For more information on ETITO and its role, go to http://www.afacompetence.org.nz.

QFEs

Q: What are Qualifying Financial Entities (QFEs)?

A. QFEs are entities registered on the Financial Service Providers Register and granted QFE status by the Securities Commission. An organisation that employ a number of financial advisers may want to become a Qualifying Financial Entity (QFE).

To be granted QFE status a business must satisfy the Securities Commission that it has the capacity to take frontline compliance responsibility for the conduct of its advisers. The QFE is licensed as an entity, instead of all of its employees and representatives who provide financial advice having to be individually registered and authorised. Some of its advisers will still need to be registered and authorised.

Q: What are the benefits of becoming a QFE?

A. The benefits vary depending on the product category on which advice is given, whether the product is issued by the QFE or a third party, and whether advisers provide a financial planning service.

QFE status enables an organisation to streamline the registration, disclosure, dispute resolution and supervision arrangements that will apply to its advisers under the new regime. In return, the QFE takes responsibility for its advisers compliance.

Further discussion on the benefits of becoming a QFE is set out in the Commission's QFE Adviser Business Statement Guide www.seccom.govt.nz/downloads/qfe-abs.pdf

Q: Do QFE advisers have to comply with the Code of Professional Conduct?

A. A QFE adviser who advises on category 1 products which are not issued by the QFE will have to become an Authorised Financial Adviser. All AFAs must comply with the Code.

QFE advisers who only advise on category 1 products that the QFE issues do not have to be authorised and are not subject to the Code. Its category 2 advisers do not have to be registered. However, the standards of professionalism expected from QFE and non-QFE advisers will be the same for the same work. The difference is that QFE advisers are supervised by their QFE rather than by the Securities Commission.

Q: How can potential QFEs prepare for the implementation of the Financial Advisers Act?

A: Potential QFEs can start preparing now for the new regulatory regime in a number of ways.

• Decide if your business wants to become a QFE - read the Commission's QFE Adviser Business Statement Guide www.seccom.govt.nz/downloads/qfe-abs.pdf. This Guide explains how to become a QFE.
• Check your obligations under the Act and the proposed amendments to it
  www.legislation.govt.nz/act/public/2008/0091/latest/DLM1584202.html
  www.parliament.nz/en-NZ/PB/Legislation/Bills/a/c/1/00DBHOH_BILL9712_1-Financial-Service-Providers-Pre-Implementation.htm
• Read the Draft Code of Professional Conduct for Authorised Financial Advisers released by the Code Committee on 31 March 2010, see www.financialadvisercode.govt.nz
• Prepare an QFE Adviser Business Statement following the Commission's guidelines. Your organisation's ABS can be submitted to the Commission for review now. This is a prerequisite for obtaining the Commission's consent to QFE status.

How should QFEs submit their Adviser Business Statement ?

Organisations seeking QFE status should send both a hard copy and an electronic version of their Adviser Business Statement (ABS) to the Securities Commission for review.

Please courier or post a hard copy to:

QFE ABS
Securities Commission
Unisys House, Level 8
56 The Terrace
PO Box 1179
Wellington 6011
Attention: Financial Advisers Team

and send it by email to:

Code of Professional Conduct

Q: 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, was appointed by the Commissioner for Financial Advisers in July 2009. The Code Committee has drafted a Code of Professional Conduct for Authorised Financial Advisers. The Code will provide for minimum standards of professional conduct that must be demonstrated by Authorised Financial Advisers, including minimum standards of competence, ethical behaviour and client care. The Code will also stipulate continuing professional development requirements.

Following industry consultation, it is expected that the Code will be finalised by July 2010.

To see the draft Code go to www.financialadvisercode.govt.nz

Q: 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 of Professional Conduct. The Commissioner is also the chairperson of the disciplinary committee.

David Mayhew took up the position of Commissioner for Financial Advisers in January 2010.

Q: What is the disciplinary committee?

A: A Disciplinary Committee will be established to conduct disciplinary proceedings arising from complaints regarding Authorised Financial Advisers once the Act is fully operational. The Committee will be chaired by the Commissioner for Financial Advisers.

See also

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