Flexible delegation powers under the coming new financial advice regime could help rejuvenate an aging adviser population, according to Angus Dale-Jones, chair of the Code Working Group (CWG).
Dale-Jones said the Financial Services Legislation Amendment Bill (FSLAB) – currently wending its way through Parliament – would allow all advisory firms to take on less experienced staff in client-facing roles.
He said under FSLAB all licensed advice firms would have the ability to appoint nominated representatives (NRs), which could encourage an ‘apprenticeship’ model across the industry.
Effectively, all advice firms licensed post-FSLAB (to be labeled as Financial Advice Providers, or FAPs) could operate staffing models similar to the current qualifying financial entity (QFE) regime.
QFEs can appoint staff who may not have formal qualifications to provide a wide range of financial advice services – albeit with certain product limitations. However, QFEs must assume full responsibility for the training and advice provided by their underlings.
Typically, QFEs tend to be banks, insurers and broker houses that distribute in-house products through a controlled network. The Financial Markets Authority (FMA) lists 55 QFEs (including mortgage-broking firm Eric James and Associates, which was approved last week), which collectively account for some 20,000 advisers.
Dale-Jones said FSLAB would enable smaller advice firms to hire non-qualified staff in client-facing roles using the NR provisions.
“The flexibility is there if they want to use it. The full range of business models would have a solution [using NRs],” he said.
“Of course, there has to be appropriate processes and controls [on NRs] that advice firms will have to include in their licence applications.
“If the NR role was limited – say a bank teller providing information on term deposits – then those processes and controls would be relatively simple.
“But if the NR was doing things with broader discretion, such as providing full financial planning advice, then there would need to be quite involved checks and processes.”
Hiring NRs could be a cost-effective way for advice firms to develop fully-qualified advisers in-house while bringing new blood into the industry. The aging financial advisory workface has been a persistent worry in the industry, particularly among the authorised financial adviser (AFA) cohort.
FMA research released last year shows about a third of the 1,800 or so AFAs were aged 56 and over; 65 per cent of AFAs were aged 45 or more.
Meanwhile, the CWG has just completed its almost-last round of consultation on the draft code of conduct that will take force under FSLAB.
Dale-Jones said the feedback on the much-altered code was largely upbeat.
“The reaction to the draft code has been positive, especially around the new succinct approach,” he said.
There would likely be some minor changes to the draft code before a final version was circulated for comment.
“We’ll analyse the feedback and probably tighten up some of the commentary on how to comply with the code,” Dale-Jones said.
According to the latest government timetable, the adviser code should be approved by the second quarter of next year with transitional licensing kicking off by the end of September 2019. The FSLAB regime proper is scheduled to go live in the second quarter of 2020 ahead of a two-year transitional period.
FSLAB passed its second reading in September but is 24th on the latest parliamentary order paper, sandwiched between the Health (Drinking Water) Amendment Bill and the Conservation (Infringement System) Bill.