New legislation puts onus on financial advisers

The collapse of a number of finance companies in recent years has spelt substantial loss to many investors.

Hence, the role of Financial Advisers and the advice that they provide have become crucial to retain confidence among the investing public.

The Government promulgated the Financial Advisers Act (FAA) 2008 on July 1, 2011. The new legislation, coming under the purview of the Financial Markets Authority (FMA) has set standards that Financial Advisers are obliged to maintain and follow.

The law aims to regulate the functioning of Financial Advisers to promote effective and efficient delivery of financial advice.

The new statute obliges Financial Advisers to be more accountable for the advice they provide and monitor their standards of service, diligence and disclosure. It also requires Financial Advisers to be registered and belong to a Dispute Resolution Scheme.

Three Categories

The FAA will govern the operating standards of Financial Advisers, to ensure that consumers have confidence in dealing with financial advisers. It also ensures that such advisers are professionals and meet appropriate standards of competence.

The new regime provides for three types of Financial Advisers:

Authorised Financial Advisers (AFA): They provide advice on Investments, KiwiSaver, Financial Planning (including Financial Investment Products and Securities), Mortgages including Home Business and Commercial Loans, Life Insurance and Health Insurance.

Registered Financial Advisers (RFA): These Advisers provide personal financial advice on Home Loans, Mortgages, Business Loans, Commercial Loans, Restructures and Debt Consolidation, Life Insurance, Health Insurance, Income Protection, other insurance products and consumer credit contracts.

Advisers working for Qualifying Financial Entities (QFEs): This category comprises Financial Advisers employed by companies (including banks and insurers). The Securities Commission considers them as Qualifying Financial Entity (QFE). These Advisers are not obliged to be registered or authorised by the FMA if they provide advice only on their QFE’s own products.

The Act clearly specifies the role of Advisers in providing advisory services.

Those in need of Investment or Financial Planning advice (KiwiSaver and investment in securities), can consult an AFA.

It is however important to determine if the Adviser has in-depth understanding of the product of banks and insurance companies and provide advice that would suit individual needs and situations.

Proven Competence

A competent Adviser will be able to negotiate a good deal on mortgage with lending institutions for the benefit of his or her client.

Most mortgage brokers and insurance advisers have opted for the RFA category instead of AFA, since the former covers almost all their activities.

Brokers involved in providing financial advice (KiwiSaver and investment products) should register themselves as AFAs.

Categorisation of professionals as AFAs and RFAs is based on their areas of activity and not on competency.

Professionals in both categories must have a sound knowledge of the products and services, demonstrate their professionalism standards of competence and act with integrity.

The Act requires all advisers, whether authorised or registered, to adopt standards of care, diligence and disclosure as per their activity.

Suresh Sharma is a Registered Financial Adviser and Director of Cherry Mortgage Solutions based in Auckland. His personal disclosure statement is available on request. Phone: 021-827575 Email:


The above article should be taken only as a guideline and not as personal advice. Mr Sharma and the management and staff of Indian Newslink absolve themselves of all responsibilities or liabilities in this connection.

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