Education providers: Proposals a backwards step
Education providers are not happy with qualification and competence proposals offered up by the Code Working Group.
Wednesday, March 28th 2018, 6:00AM 
5 Comments
by Susan Edmunds
The group is working on developing the new code of conduct that will apply to all financial advisers under the new legal regime.
It has proposed a qualification standard of a level five certificate for product advice and a degree for financial planning.
But providers will be able to argue their advisers and nominated representatives have met these standards “in aggregate” if their systems and processes backfill enough of the advice that the output is of the level required.
David Greenslade, of Strategi, said the group had lessened the clarity for advisers and organisations about the minimum standards required. “If the education requirements are not really clear, then certain sectors of the industry will 'game' the system to avoid doing the base work and the NZ public will not have been well served at all with the new code,” he said.
“It is likely that most advisers in the new regime will need to have the minimum education standard of NZCFS5 or an equivalent. If there is any perception amongst advisers and organisations that their inhouse 'equivalent' is easier and quicker than doing the formal NZCFS5, then many will want to go down the equivalent route.
“Building an 'equivalent' to the NZCFS5 and then having the FMA assess the equivalence of that will be a nightmare. The FMA does not have the time nor the staffing to assess whether a large organisation's in-house training is to the same standard as that of the NZCFS5.
"Then the output of the training will need to be assessed and moderated over time so it could be several years before it is known how effective the in-house equivalent training is. If it was not up to standard then there could be many people in the industry providing advice who are at a lower standard to that of those who have achieved the NZCFS5 qualification.”
Advisers currently operating as AFAs will be able to continue in the new regime. Greenslade said it was misguided to assume that they automatically had the required competence.
“That could be a misguided assumption as many AFAs today have been grandfathered into the current regime so grandfathering them a second time means they could be lacking some of the competence knowledge and skill required for the new regime. Operating in the new regime is different to operating in FAA land so there needs to be some level of confirmatory assessment of AFAs.”
Gary Young, of IBANZ, which operates Professional IQ College, said he was not convinced the working group had it right yet, either.
“The main issues lie in the competence area, given how different the various sectors within financial services are I don’t believe there is a one-size-fits-all solution.”
Neither organisation had seen an increase in inquiries since the proposals were revealed.
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The comment about those "grandfathered" into being an AFA. What about those AFA's who hold the Graduate Diploma of Business Studies endorsed in Personal Financial Planning Level 7, doesn't this demonstrate competency or the Certified Financial Planning designation, as this is how competency was demonstrated by granddad. Though the CWG doesn't believe it demonstrates competency either, because the paper is void of any acknowledgment of it.
Though maybe the public prefers a health insurance AFA salesperson over a CFP practitioner anyway? Maybe they have a better personality and can close the sale better. After all it is all about the "advice outcome" not the person providing the advice.
That said, I find what the CWG has proposed seems weird to me.
I characterise the apparent plan as
1. AFAs will get a free pass into the new competence regime. AFAs have done a level 5 Certificate with possible qualification equivalence(s). We could get a credit for set A (which I would bluntly summarise as financial markets the economy and general institutional stuff). I don't know how many of the 2000 odd AFAs awarded had a cross credit for a a degree, but my minimise RMSE estimate is 50%. [Set A under National certificate has been replaced by Core under NZ certificate, but I think the comparison is close enough to make my explanation robust).
2. CWG are proposing that anyone not an AFA at transition (i.e. a RFA or a new entrant) will have to have a degree and perhaps Level 6. That doesn't seem to be equitable v-a-v AFAs - I thought they would go soft on RFAs not hard! {But for a cunning strategy for RFAs see 4 below]
3 However there is a "get out of jail free card" for some licensees and their advisers in that CWG introduces the bizarre concept of "combined expertise" or "in aggregate". Ad absurdum, since the big organisation will always assert it has the necessary competence (who was the first firm to admit to you "we will do this work for you but we don't have the competence to do it") it would seem the required human bit to make combined expertise is actually nothing - i.e. trained monkeys might suffice.
I got the clear impression that a degree and Level 6 would not be required for people providing "advice" on behalf of these financial advice providers.
I have no difficulty foreseeing how a VIO would be treated by the regulators - my guess is a rubber stamp on the application. But I don't like the chances of a 3 adviser practice in Eketahuna (apologies Eketahuna advisers so insert your own favourite NZ Timbuktu) being able to show sufficient proof that their entity plus their equivalent of a trained monkey would have sufficient combined expertise.
So is this yet another example of one rule for the VIOs and another rule for the rest of us?
4. The cunning plan for RFAs. If what is proposed becomes fact, game the system by completing your NZ certificate level 5 (Core and Specialist strand) by course if you haven't got an equivalent qualification under the existng Code for AFAs) and also pass the Financial Strand of NZ Certificate. Apply for AFA status just before the cutoff time, and transition to the new regime with a free pass for AFAs. Blackadder would surely call this plan a fox.
For example, CFPCM Practitioners were given relief only as long as they had completed the Diploma at level 7 or greater and initially had to include being mentored by another professional. This also applied to anyone that could evidence they held qualifications in the financial field at or in excess of the Level 5 Certificate. This is not Grand-Parenting, it is simply showing equivalency and experience.
I agree that there are issues with the CWG’s starting point but as long as we all submit positive alternatives and rationale it would be extremely hard for this to be ignored when they finally draft their next paper.
At the Hamilton session it was highlighted that there was a lack of practitioners involved in the CWG but they were quite correctly pointing out that it was MBIE that selected the members for Ministerial signoff, so we should assist and guide rather than shoot the messengers.
lives near Hamilton - assumption based on attended Hamilton meeting
AFA
CFP
Knows its CFPCM
I wonder who that could be?
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Maybe more vested interests in the CWG than the competence, knowledge & skills necessary to the provision of good Financial Advice.
A missed opportunity.