Code changes rules around education
The Code Committee has released the draft Code of Professional Conduct for Authorised Financial Advisers which includes new concepts around recognised alternative qualifications or designations.
Wednesday, March 31st 2010, 5:57PM 
13 Comments
by Jenha White
For the purposes of authorisation there has been an increase to eight qualifications and 11 designations which are treated as having satisfied the requirements of specified Unit Standards.
Additions to the original proposal include registered legal executives, NZFMA accredited individuals and the Certificate in Financial Services from Adviserlink for specific Standard Sets.
Code Committee chairman Ross Butler says the Committee got into the heart of many of the qualifications from a consumers' point of view.
"We were seeking to ensure those qualifications would give consumers the confidence and trust to know they were of a level and content in line with the National Certificate in Financial Services (Financial Advice) (Level 5) (NCFS-5)."
Butler says the listed qualifications came up regularly in the consultation process and he acknowledges that there will be a lot of other qualifications from other universities, training providers and from overseas that will have been left out.
"So we're asking the Securities Commission to make an assessment with applications from individual degrees that are not already mentioned."
A decision was also made around those in the process of completing their designations.
"There will not be any relief unless those advisers are at least at level 5 in the assessment process.
"This code is essentially a road code for financial advisers, you can't go on the road as an AFA unless you show you can understand the code, the act and the consumer laws."
The draft code has also introduced a sunset date of three years for qualifications currently exempt from assessment in Standard Sets C, D and E.
"We are hoping that over the next three years training providers would seek to move their qualifications forward so it is at least possible to identify components of NCFS-5."
Butler says this view has been encouraged by the Minister of Education who said last week that there are far too many qualifications in New Zealand which is confusing to students and employers, with a need for standardisation.
"In the future, someone doing these qualifications will be able to pick them up to see what they will need to do to pass the requirements to be an AFA as well as the other subjects for the qualification."
Massey University is working with ETITO and is already looking at launching a qualification which will be directly equivalent to the NCFS-5, before the middle of the year.
Massey University director of financial planning and senior lecturer in banking Dr Claire Matthews says this is because the higher level 7 diploma's it offers don't directly map over to NCFS-5.
ETITO manager of strategy and corporate relations Michael Frampton says nothing in the draft code changes the planning that has been underway for months or causes any concern.
"ETITO continues to work closely with the Code Committee in preparation for the assessment system to support the authorisation of advisers."
From 16 April, advisers will be able to make reservations for competency assessments on ETITO's booking engine and assessment will be available from 1 June with the exception of Standard Set B, which will not be available until after the Code has been approved.
Butler says as a result of New Zealand's competency requirements Australia is considering a move to meet an equivalent to level 5 competence to create harmonisation of minimum standards that apply in both countries.
"New Zealand and Australia have many of the same product providers and employees moving between the countries.
"There is already a harmonisation of protocols between KiwiSaver and the compulsory Australian Superannuation scheme and with documents to underpin public offerings. For financial advisers going between the countries we need that harmonisation."
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
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None of this will make the advice given from anyone in any area of finance any better. How will following an extremely prescriptive set of documents and having an AFA qualification improve the quality of advice? Patently it won't and I for one am extremely disapointed that the professioanl organisations to which most of us belong have just fallen over and gone along with all this.
Will the public still get given poor advice by financial advisers once everyone is an AFA? We will just have to wait to see next years newspaper headlines.
It is easy to pick things apart and criticise. It is harder to come up with a solution. I challenge the above two readers to come up with an alternative solution.
I believe the qualification and the registration of financial advisors is a move in the right direction. I am sure the industry will refine and improve on the initial requirements in time. As with most processes and procedures, there are always room for improvement.
It is important for people that work in the investment & savings industry to understand the expectation of investors and potential investors and the duty of care that is owed to them. In additional, they should understand how to conduct themselves when dealing with clients.
As the President of one of the Professional Organisations involved in consultations with the Code Committee, I can assure Nick that no one rolled over and went with all this. We fought hard, and are still doing so, to fight for risk advisers selling category 2 products only to be required to be Registered but not Authorised. This has not occurred so we have to 'roll with the punches", and complete the educational requirements set out in the code.
Having completed these requirements myself (Only Unit Standard Set B to go), I can only say I am a better advisor for having done so.
Having been in the risk advise area for 30 years, I know where Mark is coming from. All I can say to others in similar situations, embrace these changes, use them to your advantage and aim to survive in this ever changing marketplace.
Your CLU gets you all of Unit Standards Sets A, and E. It would get you Set C if and only if you also have a Massey or Waikato Diploma.
Everyone has to do Set B.
So you get pretty good reward in terms of competence from having CLU.
See pp19 and 20 Competence Alternatives Schedule from the Draft Code.
Pages 19-21 of the Draft Code lists the Alternative Qualification or Designations that satisfy the different Unit Standards. The CLU, is accepted as an alternative for Unit Standard Set A. It is also accepted for Unit Standard Set C, provided it is accompanied by a Grad Diploma (Personal Risk Management or Financial Planning) Massey or a Post Grad Diploma in Personal Financial Planning (Waikato) attained before the sun set date (3 yrs after the code comes into force).
For Unit Standard Set E, the CLU is a recognised designation.
The CLU is a designation you should be proud of. In our Waikato area, there are only 5 advisers holding the CLU designation.
Read the following which was on a competitor's website. You may find you don't need to be authorised at all, just registered.
The Commissioner for Financial Advisers David Mayhew Responds
This is a response from the Commissioner for
Financial Advisers David Mayhew.
Simon Hassan and Barry Read have got it right in my view. The question is not simply one of product - category 1 or 2 - but the service being provided. This is because the Act contemplates the giving of advice as
involving taking into account the nature and requirements of the client and the nature of the service being performed. To give competent advice a needs analysis may be required, depending on the nature of the product; but that does not automatically turn the advice into a planning service. More is required for that to happen. Simply put, the more complex the service being performed, the greater the competency demanded of the adviser; and the greater the prospect of crossing the boundary into financial planning territory.
So, to answer Ron Flood's plea for a Yes or No answer, a simple needs analysis for a risk product does not, without more, amount to a financial planning service. To use Murray Weatherston's question as an illustration: "is a term life insurance adviser who does a needs analysis supplying a financial planning service in terms of the Act"; my answer would be, "On its own, no. However, if the information disclosed as part of that needs analysis leads the adviser to decide to open up the discussion with the client into other financial options for realising financial goals, you are into a different part of the forest. That decision may in part flow from what the client was seeking in the first place - the sale of a product or advice on his current financial situation." Which brings you back to the service being provided - that is, the adviser's business model and practices.
Does anyone in the industry think that education by itself makes professionals? However education in what is meant by 'international best practice' is a key part of being a professional. Who are you to think you are giving the best possible advice unless you occasionally sit back and learn/think about the process of advice giving, and look at alternative methods? Once-off education is not enough - on-going updating is required, with the code specifies. Years of experience can be very useful - but are you sure there are no ideas you don't know? If you already follow international best practice then courses will be easy to pass.
One of the good parts of the revised code is the focus on 'professionalism'. Everyone involved in the regulation process understands that education is only one of the ingredients for being a investment/ insurance/ financial adviser. This is why the code focuses on expectations of 'professional standards'. It is very very important that the industry does not ask the lawyers of the SC to specify in any detail what they mean by professional standards. This will only lead to them writing unenforceable pages and pages of out-dated & confusing law. The law should simply state broad principles and let the disciplnary committee of the SC (who will be industry figures) apply them. Professional standards are like porn - hard to define but easy to recognise when we see it.
And yes - the level 5 is pathetically low - the SC recognises that. It is only temporary. The industry needs to start on the path to obtaining higher levels than that. Changes to the regulations around mentoring and/or experiecne required before you can be start your own firm would be useful to stop the 18 year olds.
Dr Mike - Massey University
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The whole process & result surrounding the 'Code of Compliance', has become somewhat twisted & entangled in a, 'what else can we add, to really make it complicated & untenable', atitude.
My View, not that it's ever like;ly to have any affect on a pre-ordained outcome, is as follows:-
Having a Cert on the wall doesn't make a person capable or honest, nor does it make a person a financial planner.
Appeasing a bunch of so called industry standards, doesn't improve the morals/ethics of a would be advisor.
The new code allows an 18 yr old, with minimal to no life skills, to attain a so called qualification, hang the 'certificate on the wall, appease the authority(s), & go out & create havoc in the market place.
As for the 'consumer confidence', that will suppossedly be increased due to the new regime, it is clearly unfounded & at best wishful thinking.
I have been practising in the risk industry for 26 years, & have never had a corporate entity or individual client, ask to check my credentuals.
To basket the sale of 'term insurance' or any insurance for that matter, in with the term 'financial planner', is a joke & indeed a travesty.
Risk management & financial planning have never been in the same ball park, & never will.
I admit, that numerous 'insurance agents' changed the outward perception of what they do by calling themselves 'Financial Planners'. This was largely because they were failing as 'insurance agents or brokers, & they indeed were/are intimidated by the term 'insurance agent', god knows why. So there is definately merit in having a distinction made between a financial planner & an insurance broker. However, it appears that the 'distinction' has not been made at all.
Personally, I am a specialist risk management broker. I do not invest money for people. I place insurance covers to protect financial risk & impending financial disaster. End of story.
I have been in this business long enough to not need to attend inane courses that repeat every thing that has ever been said before.
It's not possible to gain a certificate by way of education, to hang on my wall that will reflect my many years experience.
I would respectfully suggest, that the activity of selling & placing 'any' style of 'Term' insurance product, should not be tainted by the words 'finnacial planning', & indeed, should be completely separated from the 'Financial Planning' label.
I also stronly urge the view, that a grandfather clause in the 'risk management' area, be included in legislation, in that as long as a broker such as myself with many years experience, & not delving in financial planning, be excempt from the requirement to have 'annual practising certificates', higher education, etc. There is nothing to be gained by persons of my experience, suddenly having a 'certificate' appear on the wall.
Certainly, belonging to a professional body such as the LBA is a must, & of course being accountable for ones actions is mandatory, but the palava attached to the new regime does nothing to benefit 'purist risk underwriters' or their clients (the consumer).
I wonder if the broker who gained his Uni Degree 35 years ago will have to re sit the exam. Mmmmmm??
Thankyou in advance for at least perusing this dialogue, however little to no effect it will have.