Wide financial adviser net cast

Retailers, car dealers and travel agents ought to consider signing up to new laws being introduced to oversee financial advisers, the Securities Commission says.

The commission will begin regulating financial advisers under the Financial Advisers Act by the end of next year. In what it labels a staff paper, the commission has outlined its preliminary thinking on how it might oversee financial advisers. The paper seeks comment and feedback by July 30.

The objective of the new law is to make financial advisers more accountable and to boost investor confidence in the professionalism of financial advisers. It comes against the backdrop of the collapse of dozens of finance companies into which thousands of investors poured their savings on the advice of financial advisers.

The Commerce Commission is also investigating how two ING funds, which invested in the likes of collateralised debt obligations (CDOs) but were promoted as low to moderate risk, were marketed. The ING funds, promoted through the ANZ, collected about $700 million from some 13,000 investors but were frozen in March 2008. Now investors are being offered either 60 or 62 cents in the dollar back if they waive any potential legal claims.

Meanwhile the Securities Commission says the new law will establish a financial service providers register and Qualifying Financial Entities (QFEs), which will "clearly" include large financial institutions.

However, the commission says the impact of the Act extends beyond the finance sector. For example, to retailers and motor vehicle dealers in relation to consumer finance arrangements and travel agents in relation to travel insurance.

"It may be relevant for those involved in point of sale distribution of consumer finance to consider whether it is more appropriate for, say, the retailer to be the QFE in respect of its employees or for the product provider to be the QFE in respect of the retailer's employees as agents of the product provider," the commission says.

Those considering QFE status will need to think through several issues such as the costs and liabilities associated with the regime and what the practical efficiencies might be for their firm and its advisers in terms of registration, authorisation and supervision.

"For an entity that does not already have the practical and financial capacity to supervise its own advisers, the costs of meeting the requirements to become a QFE may be material," the commission says.

Under the new laws authorised financial advisers' will face having their authorisation cancelled if they don't play ball or being fined up to $10,000. QFEs could have their QFE status revoked and be fined up to $50,000.

Annabel Cotton has been appointed Commissioner for Financial Advisers. The commission, meanwhile, says it's likely to need double its existing 44 staff to cope with regulating financial advisers.

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