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Everyone should have Level 5: Financial Advice NZ

Nominated representatives should not be given any leeway to skip the qualifications required of the rest of the financial advice sector, Financial Advice NZ says.

Tuesday, November 13th 2018, 6:58AM 22 Comments

It was among the submitters who offered comment on the draft code of conduct for financial advice. Submissions closed on Friday.

The code suggests that in some cases financial advice providers will be able to "backfill" their staff's competency. Those who do not have a level five qualification could be deemed to be providing advice at that standard if the provider had the systems and processes in place to fill in any gaps.

But Financial Advice NZ said there should be one minimum qualification (or the equivalent through RPL) for all persons providing regulated financial advice.

“The Professional Code of Conduct will provide a cornerstone for building public confidence and trust. Anything but a consistent requirement for those providing regulated financial advice, right across the sector, jeopardises that: it would impede the ability of the sector to establish the continuity of competency that Kiwis should be able to rely on,” said Financial Advice New Zealand chief executive Katrina Shanks.

“It is impossible for organisational ‘capability’ to be measured by qualification outcomes. If a person – nominated representative or financial adviser – is giving regulated financial advice, then that individual should be qualified to provide that advice, relevant to their role.”

A professional must have continuing professional development (CPD): Financial Advice New Zealand has advocated that both financial advisers and nominated representatives be required to create an annual CPD plan, complete a minimum of 15 CPD hours each year, and maintain a CPD log.

“CPD requirements are personal requirements that underpin an individual’s commitment to professionalism and the key components of that, such as maintaining and building competency and developing in areas of individual importance,” Shanks said.

“The code of professional conduct must uphold professionalism across the sector, and in the current form, it misses the mark. The code will play a key role for the whole sector in setting the tone for what Kiwis should be able to expect from those advising them on their financial options, goals, plans and more – whatever type of advice that may be.

“It is of concern that the code does not reflect the intention of the legislation, which is to be consumer-centric. Surely the code must state that a person who gives financial advice must place the interests of the client first.”

Other areas highlighted in the submission include managing conflict of interest, evidencing advice and extending advice beyond a product.

Tags: Code Code Working Group Financial Advice New Zealand

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Comments from our readers

On 12 November 2018 at 2:22 pm dcwhyte said:
Absolutely, Katrina - well said. Anything other than a uniform minimum qualification will only serve to confuse the consumer and put the entire industry at risk of being perceived as having double-standards.

Prioritising client interests must be paramount and 'backfilling' falls well short of achieving this.

And please don't refer to the cost of putting employees through NZQ5 - with $5bn in collective profits from NZ consumers, the banks - for whom this compromise is designed - are duty bound to place some investment back into the community from whence their mega-profits are derived.
On 13 November 2018 at 6:46 am Murray Weatherston said:
SIFA shares the concern about nominated reps, but our submission was different.

Given our view of what nom reps will actually do day-to-day, We are happy for nominated reps to have different and lesser requirements*, but our submission is that the Code should not deem those different requirements to make a nominated rep the same as a financial adviser.

If they are the same, why does the legislation discriminate between the two types - why not just have one?

* the current draft of the Code has 2 requirements for nominated reps being
(1) the individual has completed the learning outcomes as specified by their financial advice provider for their role; and
(2) the provider has systems procedures and expertise.

We will be surprised if the VIOs give any of the nom reps that job title so that the public might see they were different to a financial adviser; rather they will be called e.g. ANZ mortgage coach, BNZ Kiwisaver specialist and their sole role will be to sell/flog their employer's own product.

This is the "in aggregate" concept redrawn. It is a huge concession to the VIOs - which simply shows us that the regulators continue to be captured by the VIOs.
On 13 November 2018 at 9:15 am Bikedude said:
Dead right Murray. For VIOs its just more of the same, with little change required, and therefore the outcomes for customers will be the same as the past. No surprises there!
On 13 November 2018 at 9:57 am Barry Read said:
The bill separates advice from a human. So how will a Robo-Advice system pass level 5? And if all a NR does is use a Robo-advice type platform to deliver advice, why do they need the individual competence? The code is on the right track to allow entities to show how their advice processes human or not, meet the competency requirements.
On 13 November 2018 at 10:19 am Bikedude said:
Barry, Computer says no (cough)
On 13 November 2018 at 11:00 am ManojSinghal said:
100% agreed with you Katrina.

There should be one qualification for all financial advisers in the industry. Leaving the gaps will allow a lot of adviser firms to hire people with no/less experience in the industry and show them as nominated representatives whereas they will be doing the same job as a full fledge financial adviser will do.

There should be a uniform minimum qualification for everyone who is practicing in the financial advice industry. This will also not confuse the customer who may not understand what a Nominated Representative can or can't do.

There should be one qualification for every financial adviser but a financial adviser should be able to choose what are he/she wants to practice and should decide with his/her employer accordingly.
On 13 November 2018 at 11:37 am Murray Weatherston said:
Re entity competency
How many people are aware of ASIC's CP305 released last week?
On 13 November 2018 at 12:48 pm Mr Slater said:
I agree Katrina. Also my understanding is that to reach the competence levels via a 'backfill' or RPL will be difficult and possibly harder that L5. There was a similar option in the original Legislation and very few took that option.
On 13 November 2018 at 3:13 pm LNF said:
"The Professional Code of Conduct will provide a cornerstone for building public confidence and trust. "

After all these years, if the confidence and trust from the public isn't there, then it never will be no matter what dreamed up qualification or regulatory regime is put in place
Having said that I do not believe that the public hold the industry in low esteem
On 13 November 2018 at 3:21 pm dcwhyte said:
I can appreciate the Adviser Associations seeking a differentiation between their members and VIO employees/retainers, but the minimum educational qualification standard should be driven by consumers' interests as a priority.

Anyone offering regulated advice should be required to achieve NZQ5 (modified to include a core Financial Advice component).

This whole idea of the lack of individual competency, knowledge, and skill being compensated by the licensee's processes and controls is plain barmy.

And the contradiction in the latest Asset Mag article is likewise eye-watering - "..it's a level playing field in that we are trying to make sure there's an equivalence of rules but not requiring the bank teller to be qualified as a financial planner".

In other words, the rules apply to everyone equally - except those people over there.

If that bank teller is providing regulated financial advice of ANY description, they should be required to be NZQ5 qualified.

The consumer will be unable to make an informed judgement when minimum educational standards are applied inconsistently, exceptions are made, or concessions provided to one sector of the Advisory industry over another.

C'mon guys, we're making this far too complicated for the average consumer to understand. NZQ5 minimum for everyone offering regulated advice - that's equivalence of application.
On 13 November 2018 at 7:49 pm Pragmatic said:
David has hit the nail on the head - that is to look back at the industry through the eyes of the consumer... and it ain't close to being a 'profession' with the watered down rules being proposed for some.

I'd go as far as suggesting the same rules for all advice dispensers (irrespective of their employment status), including:

1. All dispensers of advice must hold a NZQ5 within 18 months
2. All dispensers of advice must complete a minimum of 15 hours of relevant CPD per annum
3. The minimum qualification for all dispensers of advice moves to a relevant degree within the next 5 years (think PhD for Doctors, LLB for lawyers, CA for accountants, etc)

Sounds onerous, but it'll be a major component towards instilling consumer confidence.
BTW: the above suggestion isn't a million miles away from the recently imposed Aussie rules
On 14 November 2018 at 12:00 am Billy said:
do I need level 5 ?

30 years as an adviser

Massey Diploma 1998

was a CFP for 10 years till I left the IFA

AFA from the start of AFA’s

over 1,000 CPD’s

attended dozens of courses

several overseas conferences at my own expense

did a Adviserlink course in 2008 and got 38 Level 5 credits

clients and my business survived the GFC and several other downturns

but Pragmtic thinks I need a Level 5 too

On 14 November 2018 at 10:33 am Murray Weatherston said:
Given the Aussies are onto their 10th version of reform of the financial advice in the last 20 years, they are hardly a role model.
BTW medical doctors get MB ChB (not PhDs)
The difference between medical law and accounting degrees are that they teach the academic and technical knowledge of the discipline.
There is no degree offering in NZ that I know of that teaches investment, insurance or mortgage advice knowledge. And I am not aware of any University that has such degrees on the drawing board aiming to launch in the next 5 years. How relevant is a law or commerce degree to financial advice - not really much i would have thought.
On 14 November 2018 at 10:37 am Paul Sewell said:
Interesting that we think the NZQ5 does actual meet a minimum standard of general competence, knowledge and skill to practice as a financial adviser.

You would have to be nuts not to jump on board and complete NZQ5 as it surely can't get any easier to be a Financial Adviser in NZ. Pragmatic comments make sense to me about being a 'profession'.
On 14 November 2018 at 11:35 am MAX62 said:
As a veteran of the Life Business over 35 years not Financial Planning which has always been a refugee centre for failed salespeople I am deeply offended about comments suggesting that RFA's are guilty and not capable of giving good advice or putting clients first !

What a load of rubbish !

The ISO has had but a handful of complaints from clients and the majority of those by their own admission are for non disclosure issues issues which even the most clueless advisers we find in our midst know a smoke screen qualification will not solve.

The dialogue always implies AFA'S have committed no crime it is only RFA'S that put pressure on clients to spend more and recommend the wrong benefits!

You should ask me to forward some of the reports I have on file from attempted churns on my client's since 2009 lies lies and more b/s and premium outcomes thank could bankrupt the average family .

Thankfully clients usually ignore them and phone me.

So lets release the AFA rap sheet including those recently investigated for churn leave out David Ross who holds the Australasian fraud record and according to client radio interviews used his AFA status to great advantage!!

My recommendation is if you want to go down the level 5 track start again and make all advisers resit but please god do not off load the last load of irrelevant content on to us.
On 14 November 2018 at 4:04 pm Dirty Harry said:
Wow MAX.
That's quite a contribution to the discussion. This article does not imply that Registered-but-not-authorised advisers (commonly known as RFAs) are guilty of anything, including not PTICF.

The "dialogue" also does not imply that AFAs 'have committed no crime' (quite the opposite in fact - look at the report into replacement business which found that many of the 'high replacement' advisers were in fact AFAs). Seems you have an uninformed and rather distorted view on the world.

In fact, if you are so concerned about the loss of your clients to unneccessary replacement (churn) you should thoroughly embrace the new regulations. One of the most concerning things to come from the replacement business report was that the lines of enforcement action availabe to the FMA for those worst RFAs was a warning that they may be in breach of S33 (care dilligence and skill) compared to some much more intimidating sanctions against the AFAs.

I suspect you have traded 'successfully' for your 35 years with little or no actual qualifications, and hold some degree of fear or apprehension about being required to go and get the Level 5.

Tough. This job pays well enough, it's not too much to require those who benefit from it to invest in a little education.

And I'm sure your comment about Financial Planners will be seen as a joke by some, and deeply offensive by others.

Enjoy your impending retirement.
On 14 November 2018 at 5:50 pm Murray Weatherston said:
The ridiculousness of deeming nominated representatives (NRs) as equivalent to 'financial advisers" was (I suspect accidentally) laid bare in a recent interview in Investment News (11 November).

Code chair Angus Dale-Jones was extensively quoted on the merits of using NRs as an apprenticeship scheme as a means of overcoming the ageing adviser demographic.

He said “FSLAB would allow all advisory firms to take on less experienced staff in client-facing roles as NRs” like in the QFE model.

“Currently, QFEs can appoint staff who may not have formal qualifications to provide a wide range of financial advice services – albeit with certain product limitations.”

“Dale-Jones said FSLAB would enable smaller advice firms to hire non-qualified staff in client-facing roles using the NR provisions.”

“’Of course, there has (sic) to be appropriate processes and controls [on NRs] that advice firms will have to include in their licence applications.

“’If the NR role was limited then those processes and controls would be relatively simple.

“’But if the NR was doing things with broader discretion, such as providing full financial planning advice, then there would need to be quite involved checks and processes.’”

Surely this would have to be the only occupation in the world where there was active consideration of official sanction for an apprentice to be considered the equivalent of a tradesperson simply because s/he was hired by a licensed firm.

What exactly is the problem that the regulation is being designed to solve? This is the first time I have heard the problem expressed as the ageing adviser demographic.
On 15 November 2018 at 8:55 am Barry Read said:
Murray Trades people go through an apprenticeship phase where they complete studies and assessments while working on site before becoming qualified to work on their own.

The only real difference between an NR and an FA is who is responsible for the advice service and how much autonomy they have in the advice process. As far as a consumer is concerned the services could be exactly the same. Whats the issue with that?
On 15 November 2018 at 10:44 am Murray Weatherston said:
We wish people would read what we say and respond to that - and not drag red herrings across the trail.

Let us spell out as simply as we can in words that mean their ordinary meaning our views.

1. we are NOT against an apprenticeship for new entrants

2. We are NOT against existing advisers getting whatever qualification they choose to study for.

3. But we are against the regime coding in law that a nominated representative is deemed to be the equivalent of a financial adviser [as those terms will be defined in the FMCA.]

4. And in case you have missed it the previous 500 times we have said so, , we are against VIO salespeople being statutorily disguised as advisers.

Be forewarned - we may not be so polite next time someone drags a red herring and/or misrepresents our views.
On 15 November 2018 at 10:55 am Ron Flood said:
Barry. I think you have missed the point. The status of Nominated Representatives in the legislation will lead consumers to believe they are qualified financial advisers, even though they may, in fact, be 'apprentices'.
On 15 November 2018 at 12:43 pm JPHale said:
Billy, being an existing AFA, no, you get a free pass with an expectation you will maintain your competency in relation to any changes in the future, which is likely to be fairly straightforward for you with your CV.

Keeping in mind the code requirement and your professional association requirement may be different. The code is the minimum bar to play, the professional association may require a different and higher level of requirement for CPD and competency.

How? this is yet to be determined by whatever changes get inflicted on us post-implementation.

For a change, I'm in agreement with Murray ;) we agree on more than we probably care to admit.

The NR piece is a tricky one, as the complexity of the situation increases the complexity of the systems, processes and management around the NR increases. Remembering the conduct of the NR needs to be the equivalent of the qualified FA.

So in saying that the advice from an NR should be equivalent to that of a qualified FA is good in principle. The reality is for a business to ensure that the NR is delivering to that standard they need to significantly step up their game.

So no, I don't expect there to be any NR's giving complex financial planning advice the cost and control required in the business will be far greater than paying for training.

NR's will be the newbies, they will also be the people doing simple transactional work. The stuff that's not quite administration but needs a modicum of direction to it.

The principal in play here is to enable robo-advice to operate alongside human advice. In many instances, it will be robo-supported advice, where giving it homework and a qualification will be rather difficult...

On 17 November 2018 at 1:44 pm Adviser broker 1 said:
I think the level 5 is good for head advisers to do and a time band to complete it is ok to sort out who's staying or leaving, it is a good thing having customer focused outcomes, promoting cpd, roadshows, processes and systems to assist with duty, care and diligence and weeding out what could be viewed as misleading and deceptive conduct. For ones not intending to stay in the industry and are selling until the time band of time finishes maybe they need to be focusing on the existing customers and where they are going to end up, a last burst of sales; is that going to be good? Is it better to give the veterans another 10years to finish what they are doing naturally if they are 55 or 60 plus to make sure the clients they hold transition well; having less in the industry to give advice and service will be at the detriment of their clients and potential clients; if there is no home for the clients to go that has capacity to give that service it's not a good thing not only for clients but to GDP, inflation and balance of the money systems In place. As for PA's, adviser assistants and broker support as their roles are different and focusing them into education (CPd and or other) that works with their roles will work better. But maybe not so good for nominated reps initially joining the industry as there needs to be progressed approach under a head adviser like an apprenticeship for joiners to the industry or juniors because only so many out of 1000 people can actually do the work in the end and it is skills and knowledge base that doesn't just come from study and level 5 but reading policy wordings, viewing customer outcomes, learning about people and self that brings the attributes together. Insurance and other financial products are a big thing in this day and age and the personalised service industry progressing and growing wont only be good for the customers but the community itself.

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