Exactly what is the difference between a financial adviser (FA) and a nominated representative (NR)?
This is a question that has been perplexing advisers recently, as they work to come to grips with the revamped financial advice regime.
In simple terms, both are humans who work for a financial advice provider (FAP) providing regulated financial advice. There are several commonalities between the two, which is perhaps where the confusion comes in. However, there are also a range of key differences.
Commonalities for Financial Advisers and Nominated Representatives
Both need to have the same level of competence, knowledge, and skill – that is they should hold the New Zealand Certificate in Financial Services (Level 5) V2 or its equivalent.
- need to comply with the standards of ethical behaviour, conduct, and client care required by the Code of Professional Conduct for Financial Advice Services;
- cannot engage others to work on their behalf;
- do not need a transitional licence (as it is the FAP that applies for that); and
- need to follow the new disclosure regulations.
Both FAs and NRs are also personally liable for penalties in situations of serious misconduct where they knowingly breach a duty. For example, this might be deliberately trying to mislead the client by falsifying disclosure material. The maximum penalty that may apply varies depending on the duty breached and the seriousness of that breach. However, in most cases it is up to $200,000.
In relation to false or misleading statements and omissions in disclosure information, the maximum penalty can be one of two things. Either up to three times the value of the loss, or gain, related to the breach, or up to $1 million – whichever is greater. That applies whether you are an FA or an NR.
So, what is the difference?
There are six key differences between FAs and NRs to be aware of.
- FAs must be registered on the Financial Service Providers Register. NRs are not listed on this.
- FAs must belong to an approved dispute resolution service (DRS). (They are exempt from this if their FAP is a member). NRs are not members of a DRS.
- FAs need to pay an annual Financial Markets Authority (FMA) levy of $345 including GST. There is no such levy for NRs.
- FAs are subject to disciplinary action from the Financial Advisers Disciplinary Committee (FADC) and the FMA for breaches of their duties.
- The FADC can subject FAs to fines of up to $10,000. The FADC and the FMA can direct the Registrar of Financial Service Providers to deregister or suspend a financial adviser. This is not the case for NRs (who are not registered on the FSPR).
- Only those who were QFE (Qualifying Financial Entities) advisers will become NRs on 15 March 2021. For non-QFE advisers, the business needs to apply for approval to engage NRs as part of its full FAP licence application. This process will require demonstrating that the processes and controls are in place to: limit the nature and scope of advice given by NRs; allow the FAP to regulate the type of advice provided by NRs; and to ensure the NRs have the right competence, knowledge, and skill needed for the advice being provided.
In summary, NRs have less discretion than financial advisers and can only provide advice if there are sufficient processes and controls in place on their advice.
Need to learn more?
Strategi Institute’s half-day Closing the Gaps course is designed to upskill all those who provide regulated financial advice to retail clients with the competence, knowledge, and skill required to understand and apply the legislation, regulation and code that will be applicable from 15 March 2021. Perfect for closing your knowledge gaps.
For more information, please contact the team on 09 414 1300 or firstname.lastname@example.org.