9 Comments 9 Commentsby 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.
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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.