The Professional Advisers Association, whose 1,200 members work in the insurance, investment and mortgage industries, is wary of plans to make large firms offering financial advice accountable for the actions of their agents rather placing the onus on the agents themselves.

Commerce Minister Paul Goldsmith this week announced proposals to reform legislation governing financial advisers in an effort to streamline the different types of advisers and advice, which had been confusing clients, and to require customers' interests to put first. The new framework would replace the existing two tiers: advisers, who are individually accountable for meeting their obligations; and agents, whose employer is accountable for their actions.

PAA chief executive Rod Severn says the reforms adopt a number of things his organisation was pushing for, but that the lack of accountability for agents means there's a disconnect with the goal of putting the consumer first.

"If you're giving advice, no matter what that advice is, you've got to be responsible for your own actions," Severn said. "Where you hide behind an advisory firm or the old QFE (qualifying financial entity) model, which is basically ongoing here under a different guise, I think that's disappointing."

In a Cabinet paper, Goldsmith said agents will be limited in practice "to types of advice where the financial advice firm could demonstrate it as appropriate for the firm to hold accountability". This treatment for financial advice firms would be "similar to the current QFE model and makes sense in a large organisation, like a bank, where representatives are required to follow the firm’s processes with limited individual discretion" and would manage risk "through the setting of advice processes and incentives."

QFEs are licensed entities that take responsibility for the sale of less complex financial products by their staff and are typically large organisations such as banks and insurers. More complicated products still needed to be sold by an authorised financial adviser, who can be employed by a QFE.

The Ministry of Business, Innovation and Employment's regulatory impact statement on the proposed changes said concerns were raised during consultation about the QFE model and the lack of incentives for QFE advisers to meet conduct and client care standards.

"It is unclear whether the problem arises from the different accountability arrangements applying to QFEs (alternatively, it could arise because QFEs are not subject to the consumer first obligation in most situations, in which case this problem would be addressed by extending the consumer first obligation as discussed in the previous section)," MBIE officials said.

The officials recommended against making all advisers accountable for their actions because it could limit the advice provided by QFEs, impose undue costs on the entities' advisers and the Financial Markets Authority supervising the sector. It also didn't reflect the business models of some providers and would put accountability on a party with limited ability to manage the risks. Those detriments were deemed as outweighing the potential benefit of a consistent framework for consumers and stronger incentives for QFEs to put clients first.

Agents are expected to be the dominant provider of advice under the new regime, with MBIE predicting there will be between 20,000 and 25,000 of them compared to 3,000 to 8,000 advisers. The industry is currently made up of 23,000 QFE advisers, 6,400 Registered Financial Advisers, who only need to sign up to register to sell simpler services, and 1,860 Authorised Financial Advisers, who are required to meet certain education and ethical standards to sell more complicated products.

PAA's Severn said the bulk of the reforms are "squarely aimed" at RFAs, who will have to decide whether they want to meet new competency and conduct requirements to be an adviser, or align themselves with a big firm to become an agent.