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The Changing Role of Financial Advisers

Adviser2The Changing Role of Financial Advisers

Financial advisers have been working under their new regulatory framework for nearly three years and many have changed the way in which they operate over that time. In 2011 the Code of Professional Conduct for Authorised Financial Advisers, which sets clear standards for the provision of financial advice, came into force. Since then, many advisers have been the subject of audits by the Financial Markets Authority to check on their compliance with the Code and legislation such as the Financial Advisers Act (2008). The FMA continues to work on policies and regulations that will broaden the regulatory framework for advisers.

The administrative and financial burden of complying with the new framework has seen many advisers either leave the profession or align themselves with an adviser group to access support and share costs. Sole practitioners are becoming a rarity.

Perhaps the most interesting changes is that investment advisers are more reluctant to construct and manage client investment portfolios comprised of direct investments in specific shares and bonds or single sector managed funds (that is, a fund that invests in only one asset class such as shares). Instead, advisers are increasingly recommending ‘model’ portfolios developed by research houses or diversified managed funds within which the fund manager makes decisions about the underlying investments and changes to the asset allocation. The role of financial advisers is becoming one of working with clients to understand their needs, matching them with investment solutions researched and recommended by technical experts, and broadening out the range of advice in a holistic way to cover such areas as achievement of goals, budgeting, estate planning and general financial advice. This is as it should be. Advisers should spend the bulk of their time working on developing relationships with their clients rather than pretending to be experts on investment selection.

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New Rules for Financial Advisers

Financial Advisers

Over the next few months, all financial advisers throughout the country will be preparing themselves for the new regulatory regime which will come into force following the introduction of the Financial Advisers Act. The purpose of this Act is ‘to promote the sound and efficient delivery of financial adviser and broking services, and to encourage public confidence in the professionalism and integrity of financial advisers and brokers’. By March 2011, all financial advisers will need to be registered, which in turn will require them to join an independent dispute resolution service. Disgruntled clients will then have access to a free service through which to complain and seek redress for poor advice. This process involves mediation with trained facilitators who can assist the parties reach agreement on how the complaint can be resolved. Advisers will be required to inform clients of their procedure for handling complaints and the name of the dispute resolution service they have subscribed to.

By 1 July 2011, all financial advisers providing advice on investment products will need to be authorised as well as registered. For authorisation, they will need to comply with the Code of Professional Conduct for Authorised Financial Advisers which amongst other key principles sets out the required levels of competency for advisers. Many advisers will be sitting exams and undertaking assessments in order to reach these levels. The effort and expense required for authorisation is likely to see some advisers leave the profession through retirement or selling their businesses. In some cases, such people have been advising for many years and while it is sad to see the loss of those who have learned on the job and provided good service to their clients, change is needed to move the sales oriented financial advice industry to being a client oriented financial advice profession.

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