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The Financial Adviser Act (2008) (FAA) came partly into force on the 1st of December 2010 and fully into force on the 1st of July 2011.

The Act created three types of Financial Advisers, RFA’s, Advisers of a QFE, and AFA’s. I thought it would be helpful to give an explanation of each type of Financial Adviser and what they can and cannot give advice on.

RFA – Registered Financial Adviser
An RFA must give advice with due care, skill and diligence, they must also belong to a Disputes Resolution Scheme (DRS) - this allows customers to complain at no cost if they are not happy with the advice from any Financial Adviser. They must pass a criminal check; basically they must not have been convicted of fraud or declared bankrupt within the past 5 years.

An RFA cannot give advice on any investment products, not even KiwiSaver!

An RFA has no requirement to have qualifications or training of any sort.

Advisers of a QFE – Qualifying Financial Entity
These are employees or contractors to Banks, Insurance Companies, Investment Companies, Finance Companies, Fund Managers, Credit Unions, Building Societies, Lenders, 'Loan Sharks', etc.

They can give advice on any financial product, provided they have received an appropriate level of training from their QFE. The QFE is a member of a DRS, and takes full responsibility for the advice given by their advisers.

They can only give advice on financial products distributed by their QFE. For example an employee of Bank A can give advice on mortgages or term deposits or unit trusts that Bank A sells, but they cannot give advice or comparisons with similar products from Bank B. In other words, they are unable to advise why their product is better than a competitors.

AFA – Authorised Financial Adviser
An AFA must first meet the same requirements of an RFA, they must have a minimum qualification of a Level 5 Certificate in Financial Services – this is roughly equivalent to a 2nd year university course, so is fairly comprehensive. They must also complete 20 hours of continuing professional development every year, and they must comply with a Code of Conduct specified in the Financial Advisers Act (2008). This Code of Conduct covers 18 different areas on how the AFA must run their business and act in a professional manner with the public.

An AFA can give advice on any kind of financial product, providing they have some level of expertise. For example, I do not give advice on direct investment into stocks and bonds because I have no expertise in that area.

In addition, some Financial Advisers may be members of an industry body or a professional body. Financial Advisers who are members of the Institute of Financial Advisers (IFA) must meet the standards of the IFA’s Code of Ethics and Practice Standards which are more stringent than the Code of Conduct included in the FAA, and they must complete 60 hours of continuing professional development every two years.

The IFA also awards industry qualifications, their highest being the world recognised qualifications of CLU (Chartered Life Underwriter) and CFPCM (Certified Financial Planner).

They may also have additional educational or industry qualifications such as the Post Graduate Diploma of Personal Financial Planning from Massey or Waikato Universities, or the Post Graduate Diploma of Risk Management from Massey University.