The financial advice provider regime under the Financial Markets Conduct Act 2013 (FMC Act) provides for regulated financial advice to be given on behalf of a financial advice provider (FAP) by an individual engaged indirectly through an interposed person.
This webpage relates to interposed person arrangements under a FAP licence.
Ordinarily, where a licensed FAP engages individuals to give financial advice on its behalf, it will engage them directly. Where the engagement of an individual by a FAP is indirect – i.e. the engagement of the individual takes place through another person, then that other person is an ‘interposed person’.
The Ministry of Business, Innovation and Employment has a guidance sheet that provides an overview of interposed person arrangements and explains what this arrangement may be.
The guidance highlights that a FAP is not an interposed person if it merely refers a retail client to another FAP to obtain a particular type of financial advice. It also highlights that where a financial adviser has their own limited liability company and is to be engaged by a licensed FAP, an interposed person arrangement is not automatically required, as the FAP can directly engage the financial adviser as an employee or contractor. The requirements include:
In an interposed person arrangement, financial advice is given by the indirectly engaged individuals. The individuals may be financial advisers or nominated representatives. The conditions of the engaging FAP’s licence must authorise the FAP to engage the individual(s) through the interposed person (section 431F(1) b) FMC Act).
Can a financial adviser be engaged by more than one FAP?
Some interposed person arrangements may result in financial advisers being engaged by more than one FAP. For example, where:
The legislation permits a financial adviser to be directly or indirectly engaged by multiple FAPs (unless restricted by a specific licensing condition). Each engaging FAP must record its engagement of the financial adviser against its FAP service on the FSPR. The financial adviser’s FSPR service will correspondingly reflect the details of each FAP that engages them.
Where one financial adviser is engaged by multiple FAPs to provide financial advice to each FAP’s retail clients, there is additional complexity and risk. FAPs involved in such arrangements, and the associated interposed persons, must ensure they understand and manage the risks and can meet their respective duties when putting multiple engagements in place.
MBIE’s guidance sheet on multiple FAP arrangements sets out factors that FAPs are encouraged to consider when engaging a financial adviser who will also be engaged by other FAPs.
A FAP may engage an individual as a nominated representative to give financial advice on its behalf. A FAP may not engage (directly or indirectly) an individual as a nominated representative if the individual is a financial adviser or another FAP.
A FAP can engage a nominated representative directly, or indirectly through an interposed person. The engaged individual will be the nominated representative of the FAP, not the nominated representative of the interposed person. The interposed person arrangement involving a nominated representative must be authorised by a condition on the engaging FAP’s full licence.
A nominated representative can be engaged by two or more FAPs operating under the same FAP licence. A licence condition permitting the multiple engagements of nominated representatives under the same licence is not required.
For example, the same individual may be engaged as a nominated representative by:
An individual may not be engaged as a nominated representative by two or more FAPs operating under different FAP licences, unless permitted to do so by a condition on each of the engaging FAP’s licences that relates to an interposed person arrangement.
An engaged entity is an entity that is directly engaged by a FAP to give regulated financial advice on its behalf. This must be permitted by the engaging FAP’s licence conditions (section 431F(1)(c) FMC Act). An engaged entity gives the regulated financial advice itself on behalf of the engaging FAP (e.g. an engaged entity providing digital advice to its engaging FAP’s clients on behalf of the engaging FAP’s business). This advice is given by the engaged entity, rather than any particular individual employed or contracted by the entity. An engaged entity can only be an entity, such as a company or other type of body.
In contrast, in an interposed person arrangement an individual financial adviser or nominated representative gives the advice on behalf of the engaging FAP, but is engaged indirectly through an interposed person. The interposed person will usually be an entity but is not an engaged entity.
Engaging individuals through ‘interposed persons’ to give financial advice
This is an arrangement where a financial advice provider engages individuals (financial advisers
and/or nominated representatives) indirectly through one or more other entities (the ‘interposed persons’) to give advice on its behalf.