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SiFA: Drop competence standards for nominated reps

Nominated representatives working under the new financial advice regime should not be required to meet any qualification standards, one group representing independent advisers has argued.

Monday, May 7th 2018, 6:00AM 14 Comments

by Susan Edmunds

SiFA has filed a supplementary submission to the working group developing a new code of conduct for the financial advice sector.

It said, rather than impose a level five standard for anyone offering retail product advice and a degree standard for anyone doing financial planning, the code should only require education standards of financial advisers.

Nominated representatives, who operate under the umbrella of a financial advice provider that would take on many of their compliance obligations, should not have any such requirement, SiFA said.

Chairman Murray Weatherston and consultant Robert Oddy resiled from their earlier suggestion that the base standard for the industry should be level five.

"We now submit that there should be no legislated competence requirements for nominated representatives," they said. "It strips away the illusion that nominated representatives are advisers.

"There would no longer be a need for say 20,000 nominated representatives to become qualified, thus removing pressure from the educational sector; there would be no need to set up a complex system to evaluate whether a financial advice provider had sufficient capability to administer an equivalent education programme to Level five (in order to work around a probable lack of capacity in the education sector to handle 25,000 persons);  there would be no need for any workaround like your suggestion of combined expertise or in aggregate."

Weatherston and Oddy said it would provide a clear distinction in the market.

Financial advisers would have an educational requirement to demonstrate competence, whereas nominated representatives would not.

"Under the Bill, the financial advice provider has to have in place processes controls and limitations to regulate what the nominated representative can and cannot do. We think the financial advice provider should be able to give very little and probably no advisory discretion to a nominated representative, given the nominated representative’s lower personal responsibilities compared with a financial adviser.

"As a result, it would be totally misleading to suggest that the nominated representative was actually advising the client. What the nominated representative would be giving the client would be something that had been pre-packaged by their licensed financial advice provider."

Nominated representatives should still have ethical obligations, they said.

"This submission is not intended to discourage financial advice providers from arranging proper training for their nominated representatives. Far from it, it is important that their employees are trained, but it will be left solely to the financial advice provider to determine what that training is, and they will not be able to hide behind a regulated requirement."

Financial advice providers should also be prohibited from calling their staff "insurance advisers", "mortgage advisers" or "KiwiSaver advisers", they said, to provide further clarity.

Tags: Financial Services Legislation Amendment Bill SiFA

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Comments from our readers

On 7 May 2018 at 7:42 am Murray Weatherston said:
Just for crystal clear clarity, our educational requirement for financial advisers remains at Level 5.
On 7 May 2018 at 9:10 am dcwhyte said:
I'd go further and suggest that Nom Reps working for VIOs shouldn't be subject to the Code of Conduct or be obliged to prioritise client interests first (or whatever). Same industry - different businesses.
On 7 May 2018 at 9:40 am Pragmatic said:
With respect, I disagree with this proposal. If the financial services industry wishes to be regarded as a “profession” then all distributors of financial capabilities should have a minimum qualification.

Just as you wouldn’t expect legal or medical advice from partially qualified / unqualified lawyers or doctors, nor should consumers expect to receive financial guidance from someone who is not aware of all components. That is not to say that industry participants can’t specialize (ie: as per lawyers & doctors above) in chosen fields.
On 7 May 2018 at 10:00 am John Milner said:
I can understand the sentiment regarding VIO’s and the idea to nobble their staff. But I don’t think dumbing down that sector is helpful to the industry as a whole.

In an industry that is struggling to bring in the next generation of advisers, surely an educated pool of staff to take from VIO’s is better than having to start from scratch? It’s one of the few places that appears to be able to bring new people into the industry.

I can think of a number of independent insurance/invest advisers who have spent their whole careers selling one or two brands at best. Are they to be included?

I can’t see how dumbing down the industry will help anyone. Except for those who don’t want to grow and have one foot in retirement.
On 7 May 2018 at 12:54 pm Ron Flood said:
I agree with Murray regarding Nominated Representatives. They are simply product sales people and future legislation should recognize this, and remove any suggestion that they are advisers.
As far as putting clients interests first, as soon as most of them place their VIO's product in front of a client they immediately fail this basic standard.
A vast majority of the products sold in the insurance field, by bank staff, immediately places the interests of the client on the back burner. The products are restrictive, inadequate, watered down and frankly, only satisfy the interests of the provider.

John, with regards advisers who only sell one or two products, as long as the products are fit for purpose and the clients interests are placed first, there is no problem. These advisers would still need to be qualified to the standard set, and be personally liable for any advice given.

Pragmatic, the Nominated Representatives would not be part of the wider financial adviser industry as they would not be giving advice, and it would be up to the regulators to make this point very clear to consumers.

It is now up to all those involved in shaping the future regulations to make the following distinction. If you use the services of a Financial Adviser you will receive advice that will place your interests first. The person giving that advice will be personally liable for that advice.

If you decide to use the services of a Nominated Representative, they will not be able to give you advice and you may be sold a product that may or may not be in your best interests.

Following on from this, would it not be appropriate for the Nominated Representative to also recommend that the client receive independant advice from an adviser, before taking any action.

Maybe I have taken this a bit to far!!
On 7 May 2018 at 1:50 pm dcwhyte said:
The issue lies with VIO Nom Reps being regarded as financial advisers, which is what the NZBA submission to the Select Committee suggests.

FSLAB fails to make a distinction between selling products and providing financial advice, and attempts to apply a blanket regulatory framework over widely diverse commercial models.

VIO Reps are not in the same business as Financial Advisers - they may well be in the same industry, but their duties, obligations, and responsibilities are to their employer and have no need of qualifications.

If, however, the employers wish to have their Nom Reps regarded as Financial Advisers, then qualifications are necessary.

On 7 May 2018 at 2:56 pm Dirty Harry said:
Hey Pragmatic:
Say you went to a large law firm and wanted some complex legal advice. Say the firm placed you in a small office with an unqualified legal clerk who can do basic stuff, has received some in-house training and was under the processes and "supervision" of the firm, which would be "responsible" for the clerk's "advice".
Do you proceed with that advice, or go see someone who actually has the right skills, training, qualifications and experience?

First, lets acknowledge that right now VIO staff are effectively the clerk being called a lawyer. On that we probably agree.

What you need to decide is; is it OK for a clerk to be a clerk if they are called a clerk, and do clerk stuff and the client understands that?
Perhaps the clerk doesn't need to pass the bar exam. But they sure as hell should not pretend to be a lawyer.
On 7 May 2018 at 6:37 pm Murray Weatherston said:
Following David Whyte's 1.50pm comment, here is a 3 paragraph extract from the NZBA submission

"7. Regulated financial advice may be given on behalf of an FAP by a nominated representative or a financial adviser. Section 431F prohibits an FAP from holding out that a nominated representative is a financial adviser. This means that a
nominated representative may give financial advice but cannot be referred to as a financial adviser.

8. This subtlety of language ignores the commercial and practical reality of everyday interactions with customers; customers will not understand why the person giving them financial advice is not a financial adviser, which, in common parlance the
person obviously is.

9. One of the criticisms of the current law is that it is difficult for customers to understand. The terminology used in the Bill perpetuates this problem. Both financial advisers and nominated representatives act on behalf of their FAP. NZBA submits that it would be much simpler for customers, and consistent with the overall framework of the Bill, if the two categories were referred to as ‘nominated representatives’ and ‘registered representatives’. Collectively, ‘financial advisers’."

We SEOT advisers need to fight such pro-bank notions that tilt the see-saw firmly in favour of BEOT with every ounce of our beings.

There has to be some material difference between a nominated rep and a financial adviser. Otherwise why make a statutory distinction.

Exactly what nominated reps can do is a whopping big key piece of the jigsaw that is missing.
On 8 May 2018 at 11:49 am w k said:
to have a level playing field, everyone - whether they call himself an adviser, consultant, salesman, specialist, expert or whatever - in a particular field, should have the same qualification and accreditation.

heard of a nominated doctor? lawyer? accountant? mechanic? plumber? electrician? it doesn't matter if these people are operating alone, in a small company or a big organisation, i believe they all must have the same credentials like anybody else in their profession and they are responsible for their actions, big or small.

why complicate things? why must it be different in the financial sector? shouldn't the standard of an adviser be the same for a company who hires one adviser and an organisation who hires a thousand advisers? or am i missing something? can a one man adviser be a nominated representative of his practice?

have any consumer survey been done on this matter?

i can only see one party benefit from this whole exercise.
On 8 May 2018 at 1:43 pm Ron Flood said:
w k, yes, you are missing something. We are not talking about an organisation hiring a thousand advisers.
We are talking about an organisation hiring a thousand salesman who aren't giving advice, but hoodwink the consumer into believing they can give advice.

There needs to be a definite destinction in the legislation between a financial adviser and a salesman peddling product.
On 8 May 2018 at 2:16 pm w k said:
@ron flood: yeah, to stop all these nonsense, just make everyone (in the particular field) to have the same qualification and accreditation. then there will be no need to distinguish between a financial adviser and a salesman.

wouldn't it be easier for everyone to have the same qualification and accreditation? the practitioner is then free to call himself a financial adviser, salesman, expert or whatever.

what's happening now is like choosing the materials (advice or sale) before designing a house instead of designing (qualification and accreditation) a house then choose the material that suits the design.

in short - major on the minor, minor on the major.
On 8 May 2018 at 2:19 pm w k said:
edit: "in short what's happening now - major on the minor, minor on the major."
On 8 May 2018 at 2:25 pm Comprehensive Planner said:
It seems fairly clear to me that this discussion is more around FAP Employees rather than what is current known as QFE Nominated Reps.
So, shouldn’t any differentiating title be applied more accurately by reference to the employment status between the parties, if a FAP has employees that sell the employers products (sic Banks) it is clear that they are not advising, if however the FAP has a cohort of people currently referred to as QFE Nominated Representatives (advisers) , it seems equally clear that they are not employees but rather contractors who can give advice around externally produced products and should therefore be held to an adviser educational requirement.
It seems to me at least that,
1. FAP Employee - An employee of a FAP can sell products of their employer without qualifications,
2. Advisers - Any QFE Adviser (Nominated Rep) or individual adviser should have a level 5 NZ Certificate as a baseline for single component advice, and
3. Planners - If they are providing planning services over a range of components, then they fall into the ‘Planner’ descriptor and therefore require an approved level 7 Tertiary Qualification (Degree level) in addition to or incorporating a financial advice module.
The same conduct and ethical standards apply in all situations to keep things simple for consumers. Of course, we would all still have the obligations of the FTA and CGA along with the other elements of the FSLAB once passed.
This would enable the transition to be smoother for all with less pressure on the education providers and licencing could still be at a corporate level.

On 8 May 2018 at 3:17 pm Pragmatic said:
Great insight @wk: which I’ve interpreted as “what about the consumer?”

Why should the consumer have to decipher the industry terminology to determine who’s flogging a product compared to who’s giving advice?

Making the “playing field level” is surely the first step in enhancing consumer confidence in the industry, by ensuring that all dispensers have some basic understanding

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