Transition RFAs to higher standard: PAA
The Professional Advisers Association wants registered financial advisers to be able to use their CPD to transition to a new, higher standard – and more of a role for professional bodies in regulating the industry.
Tuesday, April 19th 2016, 6:00AM 
2 Comments
by Susan Edmunds
In its submission on the Financial Advisers Act review options paper, the association said it supported one classification of adviser, with the provisions that currently apply to authorised financial advisers applying to everyone.
“There would be no distinction in the FAA between personalised and class advice, or between category one and two products,” it said in its submission.
But the Code Committee would have flexibility to specify code standards that applied in certain advice situations so conduct and complexity requirements could vary depending on the complexity of the advice.
The PAA recommends a two-step transition period to move advisers who are not currently AFAs to the new standard.
When the new legislation kicked in, advisers would have six months to apply for authorisation. The FMA would then have three months to approve or reject the application.
Advisers would have three years to use their CPD hours to meet new competence standards.
“The exception would be a core knowledge standard (that could be examined by multiple choice) which would have to be accomplished before initial authorisation,” the PAA said.
Such an approach would lessen the emphasis on minimum entry standards and focus on advisers’ qualification journeys, the PAA said.
Precisely what the competence standards were should be left to the Code Committee.
The PAA also argued for a broadened definition of sales to include an opinion given by an adviser entity through salespeople, in respect of its own products.
The entity, or person acting on behalf of the entity, would have to make clear that it was a sale and that any person involved in providing it was a salesperson.
QFEs would be abolished. The Code would not apply to sales activities, but the Adviser Business Statement would describe how the sales conditions and warnings would be internally policed.
The PAA said a central feature needed to make the arrangements work was an External Compliance Assurance (ECA) Package.
“In recommending this, we are deliberately distinguishing between the supervisory activity at authorisation - which we believe is best handled by the regulator - and the ongoing supervision of the adviser’s activities, which we believe is best handled by the industry, but subject to regulatory oversight.”
One or more professional associations could develop a process of review that the regulator could rely on.
“Importantly, we believe while in part it could take the form of an agreed-upon procedures review, it should also include a peer review element. In the case of peer review, we consider professional associations are best placed to coordinate such activity.
“Professional associations thus contribute to this new regulatory landscape in three key respects: competence, compliance and consumer awareness. For competence, we co-ordinate the provision of high-quality training and CPD. For compliance, we co-ordinate the provision of External Compliance Assurance, delivering at least the peer review component and delivering or partnering with other providers on the more routine checking. For consumer awareness, we raise public awareness of the uses and benefits of advisers and advice.”
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Regular readers will know I am not convinced that RFAs should need to prove their competence and be authorised and I do not resile from that view.
However, this comment is based on an assumption that MBIE decides that RFAs do need to become authorised.
This comment also assumes that there is only one type of authorised adviser. For this comment I call this future authorised adviser simply a FA.
I assume that all AFAs will automatically transfer to the new FA. They have already proved their mettle.
The FAA was passed in 2008, but did not become operative till 2011. AFAs had to pass all their hurdles before they were authorised. We all had to pass National certificate level 5 or hold equivalent competency alternatives.
Equity would suggest that for RFAs to become FAs, they would need to follow a similar process.
But the PAA submission eschews this equity. They may have suggested this because of the logistics of getting 5000 RFAs authorised, or they might be trying to ease the pain for their members.
Their submission is that RFAs would simply sit a multi-choice test. If and when they passed this test, they would become authorised and presumably they would become FA. They would then have 3 years to do CPD to bring themselves if necessary up to the standard of or equivalent to Level 5.
If this was implemented for a period of time, FA would be very confusing as a measure of competence; there would be former AFAs who had been tested to level 5; but a FA who was formerly a RFA could be anything from a new entrant who had just learned to pass the multi-choice test through the whole range to someone who had passed all of the National Certificate level 5 via the insurance or lending stream, and everything in between.
What a dog’s breakfast. The poor old consumer will remain totally confused.
Assuming 1000 of the 5000 RFAs have already done National certificate level 5 (which I think is a very generous assumption BTW), then there would be 4000 other former RFAs on individualised CPD programs to get up to the measurement mark.
So I reckon the PAA proposal is both unfair on equity grounds with AFAs, and completely confusing with respect to the provable competence of any particular former RFA.
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I do agree there should be one level of Financial Adviser and RFA and QFA should be abolished.