Rules trim financial advisers

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There are now far fewer qualified financial advisers than was originally thought there would be, following the introduction of a new regulatory regime.

Until this year the sector was unregulated and it was never clear how many advisers were active nationwide.

But best estimates put it at about 5000 who were offering advice on complex financial products.

Following the official start of the regime on July 1, just 1700 have registered as authorised financial advisers (AFA), a title which requires them to pass a minimum qualification.

Another 4000 have become registered financial advisers (RFA), a second tier entitled to advise on simpler products such as insurance, bank term deposits and mortgages.

There are also about 20,000 people working for larger financial institutions who are covered by their employer's qualifying financial entity (QFE) status.

Some say this has left the industry with a shortage of skilled people.

Mel Hewitson, director of financial adviser regulation for the Financial Markets Authority, which oversees the regime, said 5000 was always a "guesstimate".

Canterbury advisers had been given more time to meet the new requirements and there were 200 more AFA applications in the pipeline. So by October there would be about 2000 AFAs on the financial services providers register. "From our perspective we're neutral on what shape the industry should take - we don't even know what enough looks like yet," Hewitson said.

Peter Lee, chief executive of the Institute of Financial Advisers, said the industry body's practitioner membership of 1050 - made up of authorised and registered advisers - was down about a quarter on four years ago.

The drop-off was not just because of the new regulations, as several years of poor market conditions had also been tough on advisers. But the new regime had sped up attrition from the industry.

"For people thinking about retiring it's not worth the money to get authorisation for two to three years," Lee said. It had also weeded out part-timers.

The new rules had created a profession and would attract people from related fields who saw it as a career option.

There was a temporary shortage of qualified people, Lee said.

One financial services organisation was looking to boost its advisory force by 25 per cent.

"I'm picking up anecdotally that the large organisations out there are looking for advisers."

Spicers adviser Jeff Matthews said the AFA was only an entry point qualification. "Even though a number of people have made AFA status, some of those I still think are cowboys."

The new regime had also generated a huge amount of unnecessary paperwork.

For example, he had only just sent an updated disclosure document to clients when the new rules came in, but the lawyers advised that he should reissue it. "I guess it will settle down and some of this stuff may be curtailed."

Who's who

AFA: Authorised Financial Adviser. Can advise on complex products such as managed funds.
RFA: Registered Financial Adviser. Can advise on simpler products such as term deposits and insurance.
QFE: Qualifying Financial Entity. Body such as a bank, whose staff can advise on its own products.