Higher minimum standards possible for advisers
The Code Committee for financial advisers may look at boosting the minimum competence standards for particular classes of authorised financial advisers, such as financial planners.
Friday, October 23rd 2009, 11:14AM 
5 Comments
by Paul McBeth
The committee made the statement in its discussion document on competence, knowledge and skills for AFAs, released today, and said it might look at changing the alternatives to attaining the National Certificate in Financial Services level 5.
"It is likely that the minimum standards of competence, knowledge and skills may be raised or broadened in the future," the document said.
The committee said it recognises many advisers have been in the industry for a long time and that they may be able to demonstrate their competence without purchasing training.
"Whether a financial adviser requires training to meet the requirements of a proposed unit standard would depend on his or her level of experience, prior learning, and competence," the document said.
The document also puts forward a raft of alternatives to the National Certificate.
The committee is asking for submissions on:
- whether the standards are appropriate
- whether the division between AFAs who can provide unrestricted services and those who can only provide services to wholesalers is appropriate
- whether there should be groups of advisers who should excluded from having to complete the competency requirements
- whether the proposed alternatives to the National Certificate are appropriate
- how "wholesale" financial service provider should be defined
- any commentary around the practicalities for achieving the minimum standards and what an appropriate timeframe would be.
The paper does not cover requirements for advisers who are regulated offshore and want to offer services in New Zealand. The committee is discussing the matter with the Securities Commission on the issue, and invites any feedback on the matter.
The committee threw its weight behind a centrally administered assessment system operated by ETITO, the multi-industry training organisation, to assess financial advisers. The ETITO will work with the New Zealand Qualifications Authority to implement the necessary changes to the system governing education standards, and the committee supported implementing a moratorium on training provider accreditation until the standards are in place.
The entire discussion document can be found here.
Paul is a staff writer for Good Returns based in Wellington.
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Comments from our readers
On 23 October 2009 at 10:12 pm Simon Burnett said:
Image problem is an understatement. That comes not only from the failed investment companies but from ANZ and ING New Zealand. ING New Zealand placed money from the DYF and RIF frozen funds into collateralized debt obligations (CDOs), claiming they were low risk. ANZ sold them on a similar premise. The sales were made on the basis that no one knew about CDOs.
CDOs were a dangerous derivative to be avoided for conservative savers. That has been known since Michael Milken (“greed is good”) assembled the first in 1987. They are so complex that few either issuers or buyers understand them. The ratings agencies rigged the ratings (not my words but those of Kevin Phillips, as former White House strategist and contributor to Harper’s and Time magazine) so AAA and BBB ratings were worthless.
CDOs could be tailored after purchase, so that even the informed buyer did not know exactly what he or she was getting. That was the origin of the lawsuit by HSH Bank and Barclay’s. And the benefits of so-called diversification worked in that it widened the risks instead of diluting them.
Even “independent” financial advisers in New Zealand were selling the DYF and RIF funds just weeks before they were frozen.
Where was due diligence?
Any person (no university degree or special needed) can google “collateralized debt obligation” and come up with red flags within a few minutes. Go deeper and it gets worse. I am doing it now. A bit too late, because I was also caught by the ANZ/ING scandal.
You just needed to read the Financial Times over the past ten years to see what an impenetrable jungle CDOs inhabited.
The more I research the worse it gets. The sources are impeccable, and there are so many of them.
The kindest thing I can say about both banks and those “advisers” who recommended the funds is that they performed no due diligence at all.
On 25 October 2009 at 10:29 am Tony Vidler said:
It is true that our industry as a whole needs to improve its game, and as a result our image and public confidence will improve.
Warren Bufett once famously said "it is easy to see who is swimming naked when the tide goes out". And that is true of our industry too. The sad fact is that nearly every player in the business has been caught swimming naked in the last couple of years - not just ING/ANZ, or the advisers who had greatest exposure to finance company investments, or anything else.
I have been very fortunate to spend a lot of time in the last couple of years particularly seeing inside a lot of businesses - adviser and supplier - and if I was to make some sweeping generalisations I would say:
1. very few advisers out there haven't been caught with something in their suite of products that has not resulted in investor losses of consequence. The systemic failure and massive (&rapid) market declines across multiple asset classesin many areas, or rapid change in insurer product ranges and financial strength, has been so vast that most advisers have been caught out with something. Pointing fingers at particular issues, or issuers, is a little unfair in my view.
2. Most advisers do aspire to professionalism, and care enormously about their clients, and they do try to do the right thing. But we are fallible, and have been caught up in the rising tide of everlasting prosperity and market rises along with everyone else for some years.
3. Most advisers and suppliers are working vry hard indeed now to put in place knowledge, systems and relationships to ensure the same mistakes are not repeated in the future. In that respect much of the regulatory reform will be good for us - even though there will be (are already) some illogical and unworkable facets.
By all means lets look at the disasterous last few years and learn lessons from them so that we are not doomed to repeat the mistakes, but let's not make the mistake of indulging in a perpetual blame game. As different secitons of the adviser world take pot-shots at each other, or suppliers blame advisers and vice versa, it simply looks like an indulgent round of self-justification for the different constituencies.
I hope fervently that all the commentators, bloggers and letter-to-the-editor people are just as active during the finals aspects fo the submissions process for regulatory reform. In the main they haven't been thus far in the last 4 years.
let's look forward and help design the right system and structures, and spend a touch less time bagging each other.
On 27 October 2009 at 7:42 am Independent Observer said:
Tony - your email is a useful observation, albeit espousing the virtues that I alluded to earlier. The reality is that the NZ population of financial advisers "don't know what they don't know" and are already lining up to repeat their mistakes.
The research available in NZ is less than ordinary, with the manufacturers still driving much of the advisory outcomes through vested interest. On top of this we have an ageing financial service population who are in the process of exchanging the client's welfare for their own exit strategy.
Sadly all that is really left in the environment of poor cohesion, substandard information and vested interests, is for the government to bring in new rules and regulations to minimize old mistakes being repeated.
In other words - to bag or not to bag is really not the issue any longer (that gate has long since closed) - the issue for financial advisory participants to consider is whether the new industry is really for them.
On 31 October 2009 at 10:51 am NIgel Tate said:
Tony makes some very valid points regarding not continuing with the handbags at ten paces view, I am somewhat surprised that for a regular commentator, "Independent Observer" whoever you are, you seem to desire to continue with bagging industry participants.
It would be better in my view for you to discard your veil of unanimity so you can be clearly seen as a positive contributor and can also be held to account by those who disagree with any of your comments. It seems clear that full disclosure would tend to support your propositions or at least provide greater context.
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If you dare to take your mind away from "you" for a moment, you'll recognise that the NZ Financial Services industry has an image problem. The truth is that mum & dads just don't trust our industry anymore. As an industry, we have allowed the villains and the cowboys to abuse any fiduciary duties that they should have provided, in preference for a quick buck. Sadly we (the good guys) are faced with the reality of new rules and regulations, that will somehow help to restore some consumer confidence back in the industry. This will mean tougher rules for industry participants, increased hurdles for those who want to dispense advice, and sharper penalties for those who are unable (or unwilling) to accept change.
So if you're reading this article and considering "what does this mean for me" - spare a thought for the poor old consumer, and be prepared to embrace what ever mechanisms exist to help restore credibility. After all - it is them who pay our bills.