by Susan Edmunds
The Code Working Group developing the new code of conduct for advisers has revealed its proposals, which include setting competency standards.
Those offering product advice will need to be competent to a Level 5 qualification, and those doing financial planning will need degree-level competency. If they do not prove their competency by holding such a qualification, they will need to be able to clearly show why not.
AFAs are deemed to have met the standard but RFAs have not.
Insurance advisers will need to reach the degree level if what they offer falls is considered a financial plan, which includes insurance planning.
Chairman Angus Dale-Jones said the working group had opted for that definition because it expects the Financial Services Legislation Amendment Bill to be altered to remove its reference to advisers offering an “investment plan” and replace it with a “financial plan”.
The bill had taken away all other product-based distinctions and it was reasonable to expect it would amend that last example, he said.
To count as a financial plan, an adviser would offer to draft a plan and set goals, which the elements of the plan would combine to achieve.
“It’s not just selling a product but a fuller conversation with the client to understand what the client wants to do, with the recommendation of several different products to get whether the client is going.”
That required a higher level of competence than simply a level five qualification was able to deliver.
Advisers who had operated as an AFA were seen to have met the standards for financial planning or product advice, he said, because they had operated in a regulated environment with CPD requirements.
“It’s different with RFAs, even RFAs with many years of experience. We need a fair, measurable, quantifiable, way of being able to distinguish between people whose experience is good and peoples whose experience is not good. We don’t know what those are yet and part of the consultation is looking for an answer.”
A level six certificate has been floated as a possible stepping stone.
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But that's not what I want to concentrate on today.
I want to ask a couple of questions.
The first is about the terms "product advice" and "financial planning" - in the CWG lexicon, are they mutually exclusive (no overlapping in the Venn diagram) or in the same advisory mandate, could a financial adviser be deemed to be doing both?
This is an important consideration for those RFAs considering what I might call the cheaper option.
Also, it is important to be clear about what "financial planning" means in the CWG lexicon.
I think a lot of people will interpret that as the sort of stuff the IFA CFP financial planner does. For years, I have called this end of the industry the "pointy-head" end; the whole nine yards involving the 6 step process and all the components of financial planning as the term would be used in the industry. Most RFAs would say "I don't do that".
But I don't think that is what CWG means at all. The following is what I think "financial planning" means in the context of the CWG consultation paper. If I am wrong, I invite the Group to correct me publicly, and with alacrity.
A personal and health insurance plan is "financial planning"; a general insurance plan is "financial planning"; a mortgage plan is "financial planning"; a retirement plan is "financial planning"; and an investment plan is "financial planning".
Putting my question and comment together, a corollary is that a lot more RFAs who want to stay in the SEOt will be stuck with the degree and level 6.
And on the subject of level 6, the content is described as "financial planning and financial advice". But the paper is silent on what that means. Is the "financial advice" bit similar to the financial advice standard of level 5 NZ Cert (but at a higher level) and is "financial planning" one or more specialist strands as for level 5?
Given that we AFAs will get a free pass into the new Code competency, wouldn't it be ironic or perverse if RFAs had to do more!