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Forum attendees agree changes needed

Ministry of Business, Innovation and Employment analysts have a raft of new feedback to consider on the Financial Advisers Act review.

Thursday, February 11th 2016, 6:00AM 9 Comments

by Susan Edmunds

An Auckland forum to discuss the FAA review options paper was hosted by the Ministry of Business, Innovation and Employment and the Financial Markets Authority yesterday, and was booked out.

It is to be followed by further events in Wellington and Christchurch.

Attendees were asked to discuss aspects of the review and of the suggestions proposed in the recent options paper.

That included whether all advisers should be required to hold a minimum qualification, undertake CPD, work to the same ethical standards and whether they should be licensed at an entity or individual level.

Some attendees said advisers should all be held to the highest qualification standard if they were managing client money. But others questioned who would pay the costs associated with that and said it would be better to have different levels of competence required of advisers depending on what they were doing.

Former IFA president Nigel Tate said there should be a common competence standard for all advisers, of the level five qualification, and a single type of CPD required. “Most RFAs would meet the level five standard now,” he said.

Adviser Ron Flood said he had only opted not to be authorised because it had no value to his business. “A lot of [non-authorised] advisers have the competency, skills and qualifications.”

There was support for the Code of Conduct for AFAs’ ethical obligations being applied to all advisers but some questioned whether people working for a particular provider could struggle to balance the conflict of interest requirements with the needs of their own employer.

The role of professional bodies was also questioned – it was suggested that one body would be better placed to monitor and act for advisers in the industry rather than the eight currently operating. PAA chief executive Rod Severn hinted that was something that the associations were discussing: “We’re all talking.”

Flood said it was important that if entity licensing were considered, there was a way to also track the advisers working within that entity. He said a big problem with the Australian system was that there was no transparency about who was working for big firms.

Compliance expert Angus Dale-Jones questioned whether entity licensing would be harder on smaller firms. He said a possible solution was to license each adviser individually when they first joined the industry and then allow the businesses they worked for to handle ongoing monitoring.

Tate questioned whether entity licensing would make it harder for advisers to move within the profession.

Almost all attendees said the suggestion of “expert financial advisers” who could handle particularly complex matters, as outlined in the options paper, would just perpetuate existing problems of registered versus authorized financial advisers. Tate said the use of the word “adviser” should be restricted.

The issue of sales versus advice was discussed, and concerns were expressed that if sales was exempt from the FAA, consumers might not understand the people they were dealing with were not offering "advice". Severn said transparency and disclosure would be vital.

The FMA’s principal consultant Derek Grantham said the session’s feedback had been useful.  He said there was a danger of assuming that systems that had worked in a certain way in other countries would operate the same way here.

Tags: Financial Advisers Act MoBIE

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Comments from our readers

On 12 February 2016 at 11:37 am Murray Weatherston said:
Wake up Life general insurance and mortgage advisers


This response is given in my pure personal capacity and does not purport to represent the view of any organisation with which I might normally be associated. It’s a “greater good” contribution.
I attended the FMA/MBIE workshop in the morning on Wednesday. It would be fair to say the overwhelming majority participant view was that all advisers should meet the same competency standard, with a core of things applying to everyone, and then different additional requirements for each sub-specialty (e.g. investment, personal risk, fire and general and mortgage).
I will stick my neck out and say that if that schema is implemented it will mean that the required qualification for all financial advisers will be set at the level currently imposed for AFAs, which is NZQA level 5 (with transitional Competency Alternatives). This will be no change for AFAs, but significant change for all the rbnafas (commonly called RFAs).
I don’t share the view that is oft expressed that most RFAs are already at Level 5. I would love someone to show that out of the X,000 RFAs and QFE advisers, y% have say a CLU or a Massey or Waikato Diploma, or already hold a level 5 formal qualification. My hunch is that y will be materially lower than 50%.
This majority view about common educational competency standards is really an “apple pie and motherhood” statement – “it would be a good thing”, but frankly I have yet to see anyone articulate why this is needed. IMHO the poorest reason for Government to regulate insurance and mortgage advisers would be because investment advisers are already regulated.
In this review process, there is very little that sets out what the problem that is trying to be solved actually is.
The Options Paper does touch on this issue in respect of whether the exemption for lawyers and accountants should remain. MBIE's paper basically says that they can’t see any harm being caused and therefore they really don’t propose to do anything. [My cynical view that the answer lies more in the political clout of the Law Society and the Accountants’ bodies”].
I did ask MBIE in the 10 minutes general discussion left before our 2 hour allotted time ran out Wednesday morning, “in the context of life insurance and mortgage broking, what are the actual harms that are being addressed in the review”.
I expected that MBIE would reel off a list of bad things that are going on, but the answer was more along the lines of simply “we don’t want to be the ambulance at the bottom of the cliff”
Regrettably I wasn’t fast enough to get in the supplementary question “But what was the accident that required the ambulance”. Another questioner beat me to the punch, but he did ask a decent question about the exemptions for accountants and lawyers.
My challenge to everybody who might read this comment to come back with a reply as to what the current problems in the insurance (both life and fire and general) and mortgage adviser markets are that might justify any intervention.
I sincerely hope there are lots of replies. When they identify problems, then maybe specific policies can be suggested to cure each particular problem, rather than a blanket “make everybody up-qualify and get authorised”.
Maybe intoxicated by what I am seeing in the US Presidential race, with Sanders and Clinton going toe-to-toe on the Democratic side, and the Republican candidates totally ignoring Ronald Reagan’s 11th commandment, let me also ask whether the Professional Bodies in their public utterances on the review might not be being seduced by the notion that there might be a greater role for them in a much bigger regulation?
To be explicit, I am not in favour of Regulation requiring all authorised advisors to join a Professional Body, nor an edict requiring all existing professional bodies to merge into a single body. As an AFA, I am already required to be governed by a Professional Body – it’s the FMA/Code Committee structure. So are all other AFAs, and so will all financial advisers (except lawyers, accountants and real estate agents advising rental property of course) if the front-running changes are implemented.
On 12 February 2016 at 4:42 pm Tash said:
Hi Murray
I was not at the meeting on Wednesday but a close friend was. From what he told me my impression was that the meeting pretty much felt that the common 'core competence training' all advisers would have to undertake was around the code obligations. There is no need that this be level 5/AFA equivalent. From then the necessary other training, technical, product etc to actually be able to give advice would be needed according to the financial discipline being advised on.

None of this training needs oversight, design or verification by the FMA (it can be done by the organisation doing the training, which in many cases could be industry participants, product providers etc).

I do agree with you on one thing (I think) effectively expecting all the many thousands of life, fire and general and mortgage brokers to sit AFA style level 5 training and examination followed by licencing will decimate adviser numbers and what will it achieve?
On 12 February 2016 at 4:51 pm Murray Weatherston said:
To add to my penultimate paragraph, I note the Code Committee in its submission on FAA Review, in pars 15ff, it attempts to squelch any function for professional bodies as the standards setting body, and any need to have a representative of the professional Bodies (however we might agree who that might be) as a permanent required member of the Code Committee.

BTW their contribution overall is very measured.

They are pro "placing the interests of the consumer first" for all adviser.

The are anti the Expert Financial Adviser designation in Package 2, and think the Code suitably expanded should cover all advisers.

But I did have a wry smile when in par 23 they self-rejected any perceptions that they have been captured by the FMA, while in footnote 4, they said self-regulation was removed from Real Estate Agents because of a perception that the Industry body was favouring the members over the consumers. If my point here seems obtuse, a clearer, conciser and hopefully more effective statement is that it seems the latter case, perceptions were deemed valid, but in their own case, they have decided that others' perceptions were not.

That aside, I strongly recommend all advisers take a read of the Code Committee's response. Its available on their website and no doubt Good Returns will give it its own story.
On 13 February 2016 at 3:50 pm Murray Weatherston said:
I think I can answer for myself the question about how many people hold the level 5 qualification. The following data are taken from the Skills/ETITO Annual reports

ETITO Annual Report Statistics
Trainee EmployerCredit Level 5
Volumes Comple- Certs
tions Awarded
2007 1 1 0 0
2008 1 1 0 0
2009 21 9 8 0
2010 379 11 1564 0
2011 479 13 10819 214
2012 321 27 1007 0
2013 243 79 3275 51
2014 167 64 3957 75

Totals 20630 340

These show that the sum total of 340 were awarded the National certificate of Financial Services Level 5 by the end of 2014.

Now I know that a lot of advisers will have Competency Alternatives that they could use to qualify for AFA.

But get real - fewer than 2000 AFAs and these numbers hardly support the notion that most life agents and mortgage brokers already have the likely qualifications.
On 14 February 2016 at 12:21 pm AFA Muggins said:
Murray,
Stunning stuff ! Very enlightening. Thank you.
On 15 February 2016 at 10:07 am Dirty Harry said:
As one of the few of the 340 with L5 who doesn't work for a bank, I say bring it on! L5 for all, everybody AFA to follow. And if any advisers in my area decide to hang up their laptop bags, I'll consider buying your book. For a fair price reflecting supply and demand, of course.
On 15 February 2016 at 10:40 am Tash said:
Allow me to have a rant if you will.
Wilful ignorance is everywhere. As a society, a common approach these days is "no one can tell me anything, my opinion is as valid as the next and facts are just another opinion" and "As long as my intentions are good then I've done all that can be expected of me". THIS IS NONSENSE. Sure people are entitled to their own opinion but they are not entitled to their own facts!

Unfortunately this mindset is just as prevalent amongst "educated" / professional folk. Is it any wonder we continue to see less than optimal decisions made by people who are ill equipped because, for a start, they don't really understand (or care for) the need to discover the facts/truth.

Our regulators, the Code committee and MBIE have a duty to understand the facts, the nuances and issues surrounding the various financial disciplines. For this reason alone, suitably qualified industry representatives from all the different disciplines should be directly consulted and on the Code committee etc.

It is excusable being ignorant but building something with wilful ignorance is not.

On 16 February 2016 at 9:47 am Murray Weatherston said:
Updated figures for Level 5 Certificates

My earlier data was just for Skills (formerly ETITO).

I have now got figures from NZQA for 2010-2015 inclusive for all providers. The total is 1267, of whom 859 were awarded in 2011 alone. the figures for the last 4 years are 134, 76,97 and 57 respectively.

Of the total 34 are not attributed to any stream, 536 are Investment advice, 521 are Insurance advice and 176 are Mortgage advice.

I think these numbers conclusively show that the assertion that most insurance and mortgage advisers are already Level 5 qualified is just plain wrong, and that any proposals that are made based on those [wrong] assertions just shouldn't fly.
On 18 February 2016 at 6:18 am Barry Read said:
Hi Murray

I think the assertion is that most Mortgage and Insurance Advisers have knowledge and competence, or are working at a level, that would achieve a level 5 certificate, they just haven't yet bothered doing the courses.

I would support this assertion based on the over 2000 reviews we have completed around the country.

It would be great to see a workplace assessment of these unit standards developed by Skills that could be used rather than sending existing advisers back to school.

Achieving the current certificate could easily be done in 6 months without to much disruption to work and for a lot less cost than a legal or accounting degree.


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