How banks will be changing the way they deal with advisers

As advisers work through the transitional period to get their businesses license-ready, banks are also changing the way they deal with advisers - and different lenders will be taking different approaches, given they are facing their own increased regulatory requirements.

Adviser businesses currently have two main options - to be licensed as an individual Financial Advice Provider (FAP), or to work under another organisation’s FAP license. The two options each have their benefits and disadvantages, but according to Dentons Kensington Swan partner David Ireland, banks may soon be looking to work primarily with centralised FAPs that have many advisers under their network, as it will make their own compliance processes easier.

Discussing advisers’ agreements with their product providers, Ireland highlighted that the banks will soon have the requirements of the COFI regime to deal with, and these include ensuring that all of their intermediaries are acting in the best interests of clients. This means they are increasingly likely to turn to the aggregators for their contractual arrangements, as this will be an easier process compared to managing a large number of solo advisers individually.

Read more: FMA sets goalposts for full license process

“As an adviser, you are trying to deliver great products to your clients and helping them choose the product that meets their needs, which is where the product providers come into it,” Ireland said.

“It doesn’t matter what structure you put in place - if providers aren’t prepared to deal with you, then it’s not going to be a happy outcome for you as a business.”

“There have been a variety of different approaches from providers coming into this, particularly on the banking side in terms of how they want to structure their contractual and distribution arrangements,” he explained.

“What we tend to see on the banking side of it is that they’re going more with the aggregation line, and saying they don’t want to manage a thousand different contractual relationships. Instead, they’ll leverage off the power of the new regime and deal with a head FAP that is taking on a lot of the responsibility for what needs to happen, and their core relationship will be with that centralised FAP.”

Ireland said that in many ways, the FSLAA regime has been like the Delta variant in the community - a game changer. He noted that FAPs have a significantly higher burden on them to make sure they are doing everything right, and banks will look for FAPs that are completely confident in standing on their own two feet under the new regime.

With the COFI Bill set to be passed soon, banks will have to become more stringent in monitoring the intermediaries they work with. Therefore, Ireland said, it is vital to have a solid understanding of your business and systems, along with the level of oversight that you have over any advisers working under your FAP.

Read more: Is the COFI Bill as ‘scary’ as it looks for advisers?

“Of course, COFI will be another game changer, and we’re still expecting to see that pass later in the year,” Ireland said. “A lot of providers are now looking at how they can get their contractual arrangements appropriately organised to support what they have under the COFI regime.

“Fundamental to that is an obligation on the product providers to have confidence that their distribution channels are delivering good outcomes for customers - that is, can they be confident that any of the advisers they’re dealing within a network are providing the right advice for their clients?”

“That’s why we’re seeing that play out now in upgraded distribution agreements, and there are different approaches there.”

“Some are putting much of the onus on the centralised FAP to then deal with the advisers themselves, and others are wanting to really monitor individual advisers,” he added.

“The key thing for this, for any financial adviser provider here, is to understand how your business operates, the level of control you have over your advisers, and how comfortable you will be with some of the contractual provisions that some product providers will want to put on you. It’s not the providers trying to be overbearing or difficult, but they’ve got a lot of responsibility put on them to make sure they can be confident about their distribution networks.”