FINANCIAL ADVISER LICENSING

Busting the top ten myths

The financial advice regime in New Zealand is changing.

From 16 March 2023, anyone who gives regulated financial advice to retail clients will need to have a Financial Advice Provider (FAP) full licence or be engaged by a FAP with a full licence or an Authorised Body as a financial adviser or nominated representative. If you give financial advice after 16 March 2023 but haven’t got a FAP full licence or don’t work for someone that does, you may be breaking the law.

The team at the Financial Services Council have heard a few myths along the way, so we think it’s time to bust them and encourage every financial adviser to ensure they meet the requirements for giving great advice.

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Myths Numbers-01

If I keep ignoring the new requirements, it will all go away.

WRONG

You may be breaking the law if you provide regulated financial advice to retail clients after 16 March 2023. Don’t let your clients down, apply for your FAP full licence today or be certain you will be operating under someone else’s licence. The Financial Markets Authority (FMA) have been very clear in communicating they may take enforcement action where advice is provided outside the law.

Myths Numbers-02

I don't write any new business, and I’ve been in the industry 30 years, so I don't need any new qualifications to be able to advise my clients; my experience demonstrates my knowledge.

WRONG

If you give regulated financial advice to a retail client new or old,  you must meet the minimum requirements of the Code of Professional Conduct for Financial Advice Services, (the Code) no matter your experience. You will need to demonstrate that you meet the standard conditions including business documentation. If you were registered as a financial adviser on 15 March 2021, you have until 16 March 2023 to ensure you meet the requirements of the Code.

Myths Numbers-03

I am not worried as I can leave preparing to submit my full licence application in March 2023 - it’ll be okay.

WRONG

You’ll need plenty of time to meet the seven full licence standard conditions and prepare the business documentation needed to apply for your full licence, including a business continuity plan, cybersecurity, complaints handling, record keeping, key outsourcing arrangements and customer care and managing any potential conflicts of interest. What’s more the longer you hold off submitting your application, the greater the risk that the FMA won’t have time to process it before the 16 March 2023 deadline.

Myths Numbers-04

I have my transitional licence so feel comfortable that I can roll up into another of my dealer group FAP’s for full licensing closer to the March deadline – no worries!

WRONG

You can’t assume any other FAP full licence holder or any of its Authorised Bodies will accept you as a financial adviser under their licence, even if you currently operate under a transitional licence. They will be responsible for your advice if you are under their licence and will have their own governance process in place to ensure you fulfil their requirements as well as all the legal requirements.

Myths Numbers-05

I’m about to retire so I won’t invest in the requirements or IT, I’ll just sell my paper-based client book for five times its value before the deadline.

WRONG

Well, possibly, but you won’t have the processes in place that a potential buyer will be looking for to comply with the new regime, so you may get less than you think your book is worth. And if you can’t sell for an acceptable price before 16 March 2023, your clients might, as a result, have to go without financial advice – which may further reduce the value of your book.

Myths Numbers-06

Once I get my full licence, I can just carry on as I always have, I’ve never kept file notes or a business continuity plan, so it won’t matter.

WRONG

Even though you may have a full licence by 16 March 2023, you must meet the standard conditions of the licence continually and obligations under the Financial Markets Conduct Act (FMC). You must keep up to date with your records and documentation, and in future, you will have to complete an annual return about your business for the FMA. You will also need to keep your competence, knowledge & skill up-to-date and have an annual plan and complete learning activities to achieve that.

Myths Numbers-07

I’ve never had a complaint and none of my clients would ever complain, so it won’t matter.

WRONG

It’s not about never getting a complaint; you must as a condition of your licence have a documented complaints handling process and keep accurate records of the financial advice you provide. You’ll be breaching the conditions of your licence if you don’t have a complaint handling process. You might also find the FMA is less reluctant to ‘complain’ if it finds you haven’t got appropriate processes and controls in place to support your financial advice service.

You should also challenge your definition of a complaint. The conditions define it as:

A complaint relating to your financial advice service is an expression of dissatisfaction made to you or to a person engaged by you, relating to your financial advice service (including any regulated financial advice given to a retail client by you or on your behalf); or the complaints handling process itself where a response or resolution is explicitly or implicitly expected.

Have you never had an unhappy client?

Myths Numbers-08

It’s only me in the business, so I don’t need all these policies and things.

WRONG

Anyone who gives regulated financial advice to a retail client will need to have a full licence or be engaged by a Financial Advice Provider as a financial adviser or nominated representative from 16 March 2023. If you are granted a full licence, you’ll need to comply with the seven full licence standard conditions and obligations under the FMC Act, such as meeting competence standards and giving priority to your client’s interests. In addition to all the duty provisions of the new regime regardless of the size and complexity of your business you will need policies in place to support that.

Myths Numbers-09

I'm going to add all my friends who are financial advisers to my Financial Advice Provider (FAP), save them the bother of getting a license, it’ll be easy.

WRONG

As a FAP engaging financial advisers, you'll be responsible – and liable – for their advice too, and you’ll need to make sure that you’ve got good governance and record keeping procedures in place to ensure all your financial advisers are complying with the new rules.

Myths Numbers-10

I have Level 5, so I don't need to be licensed/I am licensed, so I don’t need to have Level 5 training.

WRONG

Both requirements go hand in hand. To give regulated financial advice to retail clients after 16 March 2023, you will either be or be engaged by a financial advice provider with a full licence, and you must meet the competence, knowledge, and skill requirements in the Code. Having a Level 5 Certificate is a means by which a person can demonstrate they meet the standard in the Code but does not mean they do not need to be operating under a full licence. Similarly when operating under a full licence, a person is required to demonstrate they meet the Code either through their Level 5 Certificate or by other means such as by reference to the financial advice providers procedures, systems and expertise.

There is plenty of help and advice out there, including our financial advice law guide - take a first step to find out more about the new financial advice regime in New Zealand.

 

September 2022
This Adviser licensing: busting the top ten myths (Top 10 Myths) is general information only. The names of any third parties are additional resources that you access at your own risk and the FSC takes no responsibility for any third party content. The FSC and its employees make no express or implied representations or give any warranties regarding this Top 10 Myths, and we accept no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omission or misrepresentation in this Top 10 Myths.