That's because banks, fund managers and others who deal with such advisers and broker don't have to check whether those providers are registered or not.
This appears to be a gaping hole in the Financial Service Providers (Registration and Dispute Resolution) Act 2008 which makes any financial adviser who operates without registering liable for a prison sentence of up to 12 months and/or a fine of up to $100,000.
An Auckland mortgage broker discovered he had lost clients to two unregistered brokers and complained to the Companies Office, which keeps the register of both registered financial advisers (RFAs) and authorised financial advisers (AFAs).
The Companies Office replied: "There is no penalty in the Act for lenders (or anyone else) to use unregistered financial service providers."
The Financial Markets Authority says it "expects that any financial services provider will have procedures in place to ensure that any distributor of their products is properly registered."
However, this loophole is evidently allowing some rogue operators to continue in business because some lenders are prepared to deal with them, no questions asked, and are able to do so without fear of penalty.
The major banks and major broker groups say they do require registration of all brokers.
ANZ National Bank, for example, says checking a broker is registered is an integral part of its broker accreditation process.
Brendon Smith, general manager of mortgage broker aggregator Allied Kiwi says providing such information to lenders is "par for the course." Mortgage Link managing director Rod Templeton and Geoff Bawden at Prosper Group say the same.
Nevertheless, the Auckland broker whose business has been affected regards the situation as "a big loophole. If lenders had a legal obligation to check their introducers were registered, that would solve the problem in one hit," he says.
"Don't you feel that it makes a mockery of the whole drawn-out, costly, tedious process we've been through over the past few years?"
