Shake-up coming for RFA insurance advisers

Insurance advisers operating as RFAs are being told they will need to have some qualifications to operate in the new advice environment – and whether that’s level 5 or a degree-level will depend on what they offer.

Thursday, March 15th 2018, 6:00AM 10 Comments

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.

Tags: Code Working Group compliance registered financial advisers

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Comments from our readers

On 15 March 2018 at 7:36 am Murray Weatherston said:
The opening sentence is certainly true if you work in the SEOT. But because of all the alternatives that are available to larger firms, it may not be true in the BEOT - someone providing advice on behalf of a VIO may not need to have any qualification at all. That's why some of us think there will be a flight to BEOT - see yesterday's story

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!
On 15 March 2018 at 9:13 am Adviser1 said:
This a serious step backwards into total confusion as far as I am concerned. Once again the powers at the top have failed to understand our industry. I am an RFA and have just offered insurance advice for 17 years. Haven't pretended to know anything else - not even Kiwisaver 'class' advice whatever that is - left that to the investment advisers and mortgage brokers?.

I have just done my level 5 and it's all about putting together a written insurance plan based on the clients needs and recommending 'fit for purpose' product solutions which kind of made sense and what I've been doing anyway.

They need to get rid of this concept of financial planning as it's just complicating it - we all do this to a certain degree whether we are an insurance, mortgage or investment advisers. This requirement for anyone doing 'financial planning' having a degree is ridiculous. Where are the degrees? Do we all have the time to study for these degrees? What would the content be? How do you fill in the 3+ years? Talk about a barrier to entry in the industry when we are trying to open up and get good advice out there. It's hard enough to recruit anyway.

Why can't we just put every adviser on a level playing field whether you offer investment, mortgage or insurance advice, level 5 minimum qualification and get on with it. Over complicating it!

That's my two cents worth now off to flog some insurance.
On 15 March 2018 at 12:12 pm Tash said:
So do I read this right? An insurance seller - who simply flogs a product or two will still be able to do that but an insurance adviser who does more, gives advice on how to structure a plan taking possible future insurance needs into account will need a much higher qualification? If this is correct that is a great way to totally frustrate the aims of the law - better protection for clients. In the words an American Officer in in Bastogne 1944 'nuts'
On 15 March 2018 at 10:08 pm Ron Flood said:
Brilliant. What a master stroke to get rid of RFA'S and give Banks and AFA's a free ride.
"AFA's, 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."

I read this to mean that existing AFA'S, get by with a level 5 qualification and stuff you RFA'S,who didn't bother to become Authorized, you can get a level 7 qualification or bugger off.

Now I know why I got my Level 7 qualification in 2007 even though I did not apply for Authorization.

Fortunately, most insurance Advisers will not fall under the category of financial planning. Even though they engage in full and meaningful conversations, they don't set the goals. The clients do that and the adviser merely provides options to help them meet those goals.

If I am wrong, and all insurance Advisers are required to meet this much higher, level 7 qualification, I pity the poor consumer, who will be transported back to the early 1980's where every adviser was tied to a provider, with a very limited product selection.
On 16 March 2018 at 1:18 pm w k said:
i can't help but restrain myself from giving my 1/2ct worth.

i've written quite some time back that it's already a done deal. the "consultation/feedback/submission" process is merely a process to justify the implementation of the act. no surprises for me here.

have i written submission before? yes, that was back in simon power days - credit to him, he actually rang me which was a surprise. have i spoken up before? yes, in a meeting with mbie. of course they didn't believe their idea won't work.

my bet, the next regime will be no different - back to the drawing board with their own ideas and after that the "processes" begin. you only have to ask one question - when was the last time a suggestion by an adviser was adopted? if none, then what make you so sure they will listen this time? - i stand corrected.

my thought - concentrate on building your business. our input will not make a wee bit of difference and there is nothing we can do about it. que sera, sera.

at the end of the day, only one party will benefit from all these - most definitely won't be the financial advisers neither will it be the consumers.

keep your heads up guys, concentrate on generating new businesses. best way of staying out of trouble is to be selective of your clients. keep the prospects and refer all the "suspects" to you know who.
On 16 March 2018 at 5:09 pm auckland adviser said:
I think that careful reading of points 20 and 24, which is the area which this all comes from, suggests that RFAs are going to be 'Grandfathered' on a 'if not, why not' basis. I may be wrong but it appears that this article may be barking up the wrong tree?
On 16 March 2018 at 11:29 pm Murray Weatherston said:
@auckland adviser
Are you prepared to have a go and explain how "Grandfather[ing] on an if not why not basis" would actually work?
On 17 March 2018 at 12:04 pm Adviser1 said:
As an insurance adviser RFA I might have to start charging my clients an added 'compliance or regulation fee' for service as well as earning commissions to cover the extra overheads.

We clearly have and will have to to take considerable time out of our businesses to go and study level 5/6/7

An insurance 'sale/process' now takes 10 times as long with the extra reports/justifications/research involved

As a group we are clearly taking on a heap of extra responsibility and liability for being sued by the client/other advisers/banks/excited lawyers/FMA

This is possibly where we are heading which is a shame in a country which I thought was under-insured and needed better and easier access to advice.
On 18 March 2018 at 6:14 pm w k said:
@adviser1: don't see any reason why we shouldn't be charging clients fee. in fact, i am telling my clients/prospects i do charge a fee for certain work done. clients who are willing to pay fees value your service and advice. i gave free advice to some of my good clients, they say to me i need to make a living - it was nice to hear that ... if only the policy makers & regulators think likewise .... sigh.

after all lawyers charge their clients for phone calls. even tradesmen charge call-out fee. BIG difference, they don't have clawbacks like we do.

i wonder have financial advisers have been giving too much free advice so much so that people don't value it? i believe free advice does not mean no liability (i stand corrected). therefore, we should charge fee for advice like any other profession to cover our costs for protecting our risks and overcoming the barriers built before us which incidentally does not come free.

just my thoughts.
On 20 March 2018 at 3:20 pm Comprehensive Planner said:
I am of the view that there is a difference between advice around a simple or single need (such as risk insurance) and Financial Planning as defined by our profession, which appears different from that intended by the CWG.

Maybe we should be considering defining the titles (lables) used by MBIE and the CWG and suggest the following; where advice is provided covering a single lower end (risk wise) of the scale product sale, we could refer to it as advice, but once advice is provided covering more then one component (heading up the risk scale), this is defined as financial planning with the extreme right end being Comprehensive Financial Planning as illustrated below.
Components 1 2 3 4 5 6
Mortgage Insurance KiwiSaver Investment Taxation Estate
Individually Level 5 Cert
Collectively Level 7 Qual and possibly current AFA assessment
Collectively Minimum Level 7 Qualification and possibly CFPCM

As advice builds on products (Components) it moves further towards planning and ultimately becomes Comprehensive Financial Planning. This should be measured at an entity level so as for example, one adviser from FAP ‘A’ can provide mortgage advice holding level 5 cert., the next adviser at FAP ‘A’ can provide Insurance advice also holding level 5 Cert, but once their client moves to get advice around KiwiSaver (3rd component) from this FAP this must graduate the advice to planning with level 7 qualification requirements and so on.

I am strongly of the belief that advice is provided by either an individual or an entity not both and that each entity (or individual) should be qualified in the same way to provide the same advice.

With regards to free advice Vs charging, I have long held the view that there is no such thing as free advice as all advice has a cost to someone, usually the adviser, so maybe we first should start tell our prospects that we are either charging for our advice or the advice is without cost to them, making it clear that it is “at our cost” if we don’t intend to charge. If we can all start doing this more clients will become aware of the value of our advice.

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