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Sovereign boss suggests the reviewed Financial Advisers Act could spark the creation of large multidisciplinary financial advice firms

Personal Finance
Sovereign boss suggests the reviewed Financial Advisers Act could spark the creation of large multidisciplinary financial advice firms

It is only a matter of time before we see ‘Deloittes’ or ‘PwCs’ for financial advice pop up in New Zealand, according to Sovereign’s chief distribution officer.

Richard Klipin maintains the regulatory shake-up the financial advice industry is undergoing, will encourage firms to join forces by merging businesses or forming a strong federation.

The rise of multidisciplinary financial advice firms

Klipin acknowledges advisers face a crossroads where they’ll have to decide which business model is best for them.  

“There will be some that will no doubt choose to become financial advisers in their own right… and there’ll be others who will be looking to connect in with colleagues and what you might end up finding is that firms come together - share capabilities and almost become like your multi-partner professional services firms.”

Klipin, who was the CEO of Australia’s Association of Financial Advisers between 2006 and 2013, says this is what happened across the ditch when the industry started to professionalise in a similar way it is in New Zealand.

He says firms like Evalesco Financial Services and Kearney Group started providing multi-disciplinary advice on investments, insurance, wills, estates, superannuation, age-care and so on.

“Like-minded professionals came together and said, ‘Let’s create a single branded business that provides this one-stop-shop, or let’s join together almost as a bit of a federation.

“This was driven by client need on the one hand, but also cost savings and economies of scale on the other hand.”

Klipin recognises advisers’ compliance costs might increase as the government evens the playing field by doing away with the current adviser classifications, and makes all advisers (not just Authorised Financial Advisers) put consumers’ interests first and disclose how they’re paid and what the limitations of their advice are.

He says it’s too early to tell whether this may be the case for Sovereign, which distributes its products through Authorised Financial Advisers (AFAs), Registered Financial Advisers (RFAs) and Qualified Financial Entity (QFE) advisers.  

Yet he points out MBIE has indicated it doesn’t want to stifle business. In fact, it says one of its objectives is to ensure “Regulation is enabling, with no undue compliance costs, complexity or barriers to innovation”.

Government moves towards more ‘flexible’ regulation

Following 18 months of review and consultation, the Ministry of Business, Innovation and Employment (MBIE) released a report on Wednesday outlining how it plans to simplify the regulation of those who provide financial advice, through its review of the Financial Advisers Act (FAA).  

It plans to give firms that provide financial advice more flexibility to decide how they would like to demonstrate compliance with the Financial Markets Authority’s (FMA) “competence, knowledge and skill standards”.

While the regime will be changed so that anyone who gives financial advice will have to put consumers’ interests first and be more transparent, the industry will also be given more responsibility to regulate itself.

Under the new regime, anyone (or any robo-advice platform) providing financial advice services will also need to be covered by a licence. To ensure this does not impose undue costs on firms or government, licensing would be required at the firm level (for the avoidance of doubt, a sole-trader is considered a firm). 

Those providing financial advice will be known as either a ‘financial adviser’ or an ‘agent’. Financial advisers will be individually accountable for complying with the legislative and Code obligations whereas financial advice firms will be accountable for their agents. 

While the standards ‘financial advice firms’ will need to meet will be legislated, MBIE says “expectations would vary, depending on the size and nature of the firm, the services it provides, and whether it engages financial advisers and/or agents.”

MBIE goes on to say financial advice firms will be given “flexibility” in how they comply, and while there will be an industry Code of Conduct, “some firms could develop their own internal training programmes. This may be preferred by larger firms that want to establish courses tailored to their services and agents at potentially less cost.

“Through the licensing process, firms could convince the FMA that their tailored programmes achieve the standards in the Code of Conduct.”

NZ’s 6,400 RFAs to be hit the hardest

Klipin acknowledges: “From an adviser’s point of view - particularly those who are RFAs - the report will lead to significant change and when change occurs, sometimes it’s pretty confronting.”

RFAs will be hit the hardest by the regulatory changes, as they’ll have to meet higher disclosure and competency standards, similar to that AFAs already have to meet. There are currently around 6,400 RFAs in New Zealand.

Klipin says the devil will be in the detail as to how QFE advisers will be affected by the changes, yet maintains banks (which are also QFEs) won’t be hugely impacted, as their staff are generally salaried.

He is worried changes to the regime will spark an exodus of advisers from the industry, which is already suffering a shortage, similar to that of 2010 when the FAA came into force.  

“Change always provides opportunity, but it is confronting for some and in the end, for New Zealanders to have access to good advice, they have to have access to good advisers, and that’s about growing the market rather than contracting the market,” he says.

“From Sovereign’s point of view, our role is to work closely with our distribution partners, with our adviser partners across the market, to help them get well positioned for the future.”

Overall Klipin believes the review will serve consumers well. He says: “The government wants to see more consumers getting advice and this is well in that direction.”

See this story for more on how the review will affect consumers.

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"Under the new regime, anyone who provides financial advice will be licenced by the FMA. They can do so individually and be called an ‘adviser’, or they can do so through their firm, if it’s licensed by the FMA, and be called an ‘agent’."

I don't believe this is correct. Licensing is proposed to be available to a financial advice firm only. Anyone who wishes to be called a financial adviser must be attached to a financial advice firm - there is no option for an individual financial adviser to operate on a 'stand-alone' basis.
."............licensing would be required at the firm level (for the avoidance of doubt, a sole-trader is considered a firm) " - p.62 para 3, 2nd sentence.

For the avoidance of doubt, this replicates the Australian Dealer Group license model..


Does this include 'property coaches..' who seem to be a dime a dozen at the moment? But who are of course providing an excellent service, advancing the interests of New Zealand and NZ'ers as a whole.


Thank you for your feedback dcwhyte - you are right. While advisers will be individually accountable for abiding to the Code, they still have to be licenced through a firm. I have amended the story accordingly. Sorry about that.



How many sole traders would you expect to exist and operate as financial advisers post the introduction of the changes? I am sure there will be some consideration from the FMA re licencing fees for these one-man bands.


This is like rearranging the deckchairs on the Titanic. The public is going to continue to be ripped-off by poorly trained and supervised salespeople. People whose income depend on commission from selling something.
I spent 40 years in financial services in the UK and NZ is 30 years behind in properly supervising the industry.
Most of those who purport to offer financial advice are not fit for purpose and this government doesn't give a toss. Mind you, nor did the last government. I pity those who need advice.