The Government has confirmed the start date to the new financial advice regime for Monday 15 March 2021. The transitional licensing application window remains open until then. In the meantime, the current Financial Advisers Act 2008 continues to apply.
Changes to how financial advice is regulated
The laws governing financial advice in New Zealand are changing. As part of the changes, the Government is removing the three current adviser types – Registered Financial Adviser (RFA), Authorised Financial Adviser (AFA) and QFE adviser – and all advisers will need to meet the same standards.
Qualifying financial entities (QFEs) are companies or organisations that are registered on the Financial Service Providers Register and have been granted QFE status. An organisation that employs a number of financial advisers may want to become a QFE.
QFE status enables an organisation to streamline the registration, disclosure, dispute resolution and supervision arrangements that will apply to its advisers under the financial adviser regime. In return, the QFE takes responsibility for its advisers' compliance.
The benefits of becoming a QFE vary for each organisation depending on:
the product category on which advice is given
whether the product is provided by the QFE (or QFE group) or a third party, and
whether advisers also provide an investment planning service.
Single entity: the simplest QFE structure consists of a single legal entity employing a number of financial advisers. The QFE is responsible for the compliance of its advisers and nominated representatives with the Act.
Partner entities: two or more entities can join to become a single QFE. To apply for QFE status in partnership the entities must be related bodies corporate. These partner entities are jointly and severally liable for the compliance of the QFE advisers in all of the partner entities, as well as for the conduct of their nominated representatives, i.e. they share collective responsibility.
Every QFE and every partner entity of a QFE must comply with the terms and conditions of its QFE status.
Once QFE status has been granted, employees and nominated representatives who provide financial advice do not have to be individually registered and authorised. However, some of the QFEs' advisers will still need to be registered and authorised if they provide an investment planning service or give advice on category 1 products that are not provided or promoted by the QFE or QFE group. Find out more about the products a QFE adviser can sell.
QFE is responsible for all financial advisers including nominated representatives
A QFE is responsible for the conduct of all of the financial advisers it employs and can also take responsibility for advisers who are not its employees. These may include:
Nominated representatives - where a QFE nominates a person to provide financial adviser services on its behalf
Employees of associated entities - where a QFE applies to the Financial Markets Authority to approve the addition of one or more entities as associated entities of the QFE.
All of the advisers that a QFE is responsible for, including those it directly employs, nominated representatives and advisers in associated entities, fall into one of the following two groups:
QFE Advisers - individual advisers who are not Authorised Financial Advisers (AFAs)
The QFE is responsible for the sound delivery of financial adviser services by its financial advisers and encouraging their professionalism and integrity. A QFE must ensure that its financial advisers comply with the obligations of the Financial Advisers Act 2008. It is accountable for the advice they give, whether they are authorised or not. The QFE sits between FMA and its advisers and is responsible for ensuring that they meet and maintain appropriate standards.
When applying for QFE status an entity must specify the procedures it has in place to train its advisers, demonstrate how it sets standards for advisers and how it monitors those standards.
What responsibility does a QFE take for its nominated representatives
A QFE is responsible for ensuring compliance by each nominated representative with the terms and conditions of the grant of status (see section 76 (1) (a)) and is further responsible for ensuring compliance with each nominated representative's financial adviser obligations (section 76 (1) (d)).
A QFE takes full responsibility for all of the financial adviser services provided by nominated representatives. It should take this into account in considering any nomination of an adviser particularly if it is contemplated that the adviser may provide services other than on behalf of the QFE, for example on their own behalf or for third parties.
Who is a QFE Adviser
QFE advisers are employees or nominated representatives of Qualifying Financial Entities (QFEs).
QFE advisers need to be individually authorised if
they provide personalised financial adviser services to retail clients on category 1 products not issued or promoted by the QFE or a member of the QFE group, and/or
they provide investment planning services.
An adviser who provides personalised adviser services to retail clients on category 1 products not issued or promoted by the QFE or a member of the QFE group must be an Authorised financial adviser (AFA). They will be subject to the obligations that apply to AFAs.
QFE advisers do not have to be individually registered or be authorised if they provide
financial adviser services to retail clients on category 1 products that the QFE or QFE group issues or promotes, and/or
However, their QFE must demonstrate that it maintains procedures to ensure that retail clients receive adequate protection.
For services for category 1 products, FMA must consider whether the QFE's clients receive protection of a similar standard to that provided by advisers who are subject to the Code, taking into account their scope of products. See section 66 of the Act.
The standard of professionalism expected from QFE and non-QFE advisers doing similar work is the same.
What products QFE advisers can sell
QFE Advisers can give financial advice to wholesale clients and can give class advice to retail clients. They can also provide personalised advice and discretionary investment management services for category 1 and category 2 products without being individually registered (and authorised), as follows:
Category 2 products
Category 1 products
a single entity QFE
Employees and nominated representatives of the QFE
Yes where QFE is product provider or for securities, the promoter
a QFE composed of partner entities
Employees of any partner entity and nominated representatives
Yes where any partner entity is product provider or for securities, the promoter
a QFE which has associated entities
Employees of the QFE (or its partner entities) and those of the associated entities and any nominated representatives
Yes where, OFE, partner entities or any of associated entities is the product provider, or for securities, the promoter
A QFE can extend the range of financial products or services that its advisers may provide by applying to the FMA to approve the addition of one or more entities as associated entities.
Employees of any entity in the QFE Group and the QFE's nominated representative can advise on category 1 products where any entity in the same QFE Group is the product provider or in the case of securities, the promoter, and any category 2 product, without being individually registered or authorised (see section 18 of the Act).
What is a QFE nominated representative
A QFE can nominate any individual adviser as a nominated representative (see section 74 of the Act). It does not have to nominate all of the agents who sell its products. A QFE can nominate advisers either in writing or if agreed by FMA via another mechanism. This will be included in the terms and conditions of its QFE status.
A person may not be a nominated representative of more than one QFE, except when the two QFEs are related companies, as this would cause confusion about which entity was responsible for the representative's conduct.
A QFE must provide FMA with a list of its nominated representatives, when requested. In addition, the terms and conditions of QFE status will specify how often the list must be provided.
What is an associated entity
A QFE may apply to the FMA to approve one or more entities as associated entities of the QFE (see section 65 and 67 of the Act). The QFE's application must state how it is connected to the associated entity. The QFE and its associated entities form a QFE Group.
If approved, the QFE is responsible for the advisers of the associated entity. The advisers in the QFE group can advise on products provided or promoted by the QFE and any of its associated entities without being individually registered and authorised.
What is a QFE group
A QFE group is the term used for either:
a QFE and its associated entities
the partner entities that together form a QFE and any associated entities.
A QFE must choose a name for its QFE Group and submit it to us for approval (see section 69 of the Act). Employees of any entity in the QFE Group and its nominated representatives can advise on category 1 products where any entity in the same QFE group is the product provider or in the case of securities, the promoter, and any category 2 product without being individually registered or authorised (see section 18 of the Act).
comply with the terms and conditions set out in the QFE's grant of status. The terms and conditions for QFEs include the standard conditions for QFEs, subject to any modifications made as part of the grant of QFE status, and the specific terms and conditions for the QFE
submit an annual report to the FMA. For more information see section 77 of the Act and terms and conditions for QFEs, particularly the reporting and notification standard conditions for QFEs.
Terms and conditions for QFEs
The FMA grants QFE status subject to terms and conditions. The terms and conditions include standard conditions subject to any modifications we consider appropriate and terms and conditions specific to the QFE (if any).
Our monitoring and surveillance work with QFEs is:
risk-based - taking into account information on the nature, scale and extent of the business and the compliance controls; QFEs that only comply with the letter rather than the spirit of the law may be assessed as higher risk
targeted - based on information received
theme-based - eg. researching a particular service, or exploration of a potential industry approach or problem
You must be licensed to provide DIMS i.e. when an investor gives you the authority to make decisions about buying and selling financial products on their behalf. See more about DIMS licence and obligation.