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FARs - where's the accountability?

29 Mar, 6:00am by Susan Edmunds

It is appropriate for financial advice providers to be accountable for their financial advice representatives, because they are simply acting as a conduit between the provider and the client, the Ministry of Business, Innovation and Employment says.

Submissions close this week on the draft of the Financial Services Legislation Amendment Bill.

MBIE issued a document with questions and answers about the bill, which sets out new designations: Financial advisers, financial advice providers and financial advice representatives.

Representatives will work for providers in much the same way as QFEs currently operate.

One of the questions in the MBIE document was: Why are financial advice representatives not personally liable?

MBIE said it was because those representatives would be bound by processes, controls and limitations set by the provider, which would control the outcomes for customers.

“The processes, controls, and limitations in effect mean that the provider is controlling the advice outcomes for consumers, and a financial advice representative is essentially acting as a conduit between the financial advice provider and the client. This is what makes it appropriate for financial advice providers to be accountable for their financial advice representatives. “

PAA chief executive Rod Severn said the designation was inappropriate.

“A crucial objective of this regulatory review is to put the client’s interest first: in our view the proposed FAR structure just simply doesn’t meet the grade. It’s simple: you offer advice if you are personally accountable; if you are not personally accountable, you don’t offer advice. Why should the public accept anything less than accountable professionals when dealing with their financial well-being?”

He said the recommended representative designation would only muddy the waters.

“It will create further public confusion and diminish the understanding of the value of advice. How can we say that someone who is not personally accountable, and whose ‘advice’ is limited to products offered or supported by their financial advice provider, can put their client’s interest first? There is an intrinsic conflict of interest."

Severn said a structure in which the financial advice provider set controls and limitations left a lot of room for different views on crucial areas, such as what constituted a scenario which involved a “level of complexity or uncertainty that cannot be adequately addressed using a financial advice provider’s predetermined processes controls and limitations,” and was therefore out of the scope of financial advice representatives.

"Way too much room to move; particularly when you consider that reducing consumer confusion is one of our – the industry and regulator’s – primary concerns and objectives… And not only reducing consumer confusion, but crucially, raising the public's’ trust and confidence in advice."

Financial Planning