We live in a world of acronyms, so here’s another one: QFE.
Also known as Qualifying Financial Entity, the QFE concept was dreamed up to fast-track the registration and supervision of financial advisers under the new regulatory regime, which is due to come into effect late next year.
The QFE rules allow any approved organisation – generally only large financial institutions are expected to take on the challenge – to assume responsibility for advisers acting under their auspices.
QFEs will take on some of the workload of the Securities Commission, who will not have to approve and authorise every financial adviser who is caught by the new legislation.
It’s a pragmatic response to a difficult regulatory exercise – estimates of how many financial advisers there are in NZ range from about 5,000 to 20,000 – but it also hands some competitive advantage to financial institutions at the expense of smaller, independent operators.
This week the government increased that power even further with a number of changes to the QFE rules.
Previously, QFEs were only to be responsible for their employees but will now also be able to shield named “contractors” under their regulatory banner.
As well, QFE advisers will be sell a greater range of financial products, rather than only those created by the QFE itself. In the legal language, QFEs will be able to push products down their chains where they are “promoter” as well as “issuer”.
It might seem a subtle change but it allows financial institutions to cut in on the business of independent advisers without necessarily having to jump the same compliance hoops.
Some independent (or ‘non-aligned’) advisers are feeling aggrieved at the changes and warn that the QFE regime could reduce consumer choice, leaving them only to select which bank to buy almost identical products from.
This could happen but one industry insider pointed out to me that independent advisers can survive QFEs.
“It’s already tough being an independent,” he said.
Another acronym can’t hurt.
Tags: David Chaplin
QFEs look very much like the IFA networks seen in the UK – but product providers there didn’t become networks and offer products from other companies. Even in these circumstances a provder who sets up as a QFE will not be independent and will be selling a very restricted set of products. In reality QFEs will have to be very careful about the quality of advice their “contractors” provide and the quality of the products they sell as they are putting themselves squarely in the firing line and they represent a very big target.
What’s the big rush – there has been about 50 years to develop a decent regulatory regime and we failed to do so – rushing now just won’t do the job. Surely the evidence from the last few years has shown that the large organisations are just as likely to be naughty as the small independants.
I can never understand why the New Zealand investor places themselves in such danger for 2-3% additional return, when capital lost takes up to 50 years to replace. The bulk of the people caught in the Finance Coy debacle for example didn’t have time to recover their capital anyway, and should have known better – I know when I was small I heard nothing other than warnings about what happened during the depression, and by the hair-colour of the attendees of liquidation meetings over the past few years, so must have they.
Surely it’s as important to educate investors in this country as it is to protect them.