Be ‘Crystal Clear’ on Advice Roles – FMA Case Study

Financial advisers are being reminded by the FMA that providers contracting admin staff “…must be crystal clear on what their roles entail and put processes in place to ensure advice is prepared and delivered by qualified advisers only.”

In its latest Financial Advisers Update, the authority outlines a case study on using support people in the advice process.

It says that in a recent desk-based review, it observed a small Class 2 financial advice provider “…using client relationship managers in the advice process for insurance conversations, where the relationship manager – who is not an adviser – completed the majority of the advice process steps.”

The authority says this created the impression the relationship manager provided the financial advice to the client.

…The overseeing adviser left a significant part of the advice process to the relationship manager…

“The relationship manager was neither engaged by the financial advice provider nor permitted to give financial advice. The overseeing adviser left a significant part of the advice process to the relationship manager, who replaced insurance policies without proper care, diligence and skill,” the FMA says.

It also notes the conduct was not adequately detected by the FAP “…due to poor oversight arrangements. It was detected instead by a provider, who then cancelled its distribution agreement.”

FMA’s Expectations

The FMA says it acknowledges it’s industry practice for FAPs and financial advisers to use support people to create efficiencies, e.g. having someone help with administrative activity to allow advisers to focus on developing the advice recommendations.

“The financial advice regime is principles-based and allows flexibility in how financial advice providers provide their financial advice service; however, these arrangements can also create risks to clients.”

…Inadequate oversight could create confusion about who is giving the advice and the potential for unsuitable advice…

It says inadequate oversight could create confusion about who is giving the advice and the potential for unsuitable advice.

“There could also be consequences for the adviser themselves, such as losing distribution agreements or being “blacklisted” by product providers.”

The FMA Financial Advisers Update says FAPs and financial advisers are reminded that:

• Only those meeting the competency requirements set out in the Code of Professional Conduct for Financial Advice Services are permitted to give regulated financial advice
• There should be clarity around roles in the advice process. Clients must be made aware of who is giving financial advice and who is supporting with administrative tasks
• The financial advice provider must provide sufficient oversight to ensure that those contributing do not overstep their boundaries

Andy Crow, FMA Manager, Financial Advice, says advisers must be personally satisfied that adviser duties have been complied with. That responsibility cannot be delegated.

“The providers contracting admin staff must be crystal clear on what their roles entail and put processes in place to ensure advice is prepared and delivered by qualified advisers only,” he says in the update.

Click here to see the full FMA Financial Advisers Update.