IFA recommends beefed-up requirements for advisers

Financial advisers should have a minimum of one year’s practical experience before they can become authorised, according to the Institute of Financial Advisers.

It has made the recommendation in its submission to the Code Committee, which is responsible for deciding the minimum standards for authorised financial advisers under the new regulations coming into force next year.

The current proposal is to require authorised advisers to hold a qualification equivalent to the Level 5 National Certificate in Financial Advice.

But this qualification would only be the equivalent of a “driving test”, according to a Securities Commission staff paper on authorised financial adviser competence released earlier in the year.

“It would provide an indication that a person meets the theoretical and practical competence standards appropriate for operating on the financial advice "road network" but not necessarily confirmation that they have the skills and knowledge for certain higher-level specialised advice activities.”

More experience needed

IFA president Lyn McMorran said the proposed minimum education standard is acceptable but could be strengthened.

“We recommend adding a requirement for either one year of supervised or mentored experience or three years of unsupervised experience,” she said.

The IFA submission said that the amount of practical experience required by the National Certificate is insufficient “as there is a significant difference between what is required to gain a unit-standard based qualification and working with clients for an extended period.”

Stick to what you know

The submission also recommended allowing advisers to provide advice only in relation to areas where they are able to demonstrate competency, noting that the IFA’s own Code of Ethics requires this.

“IFA recommends that additional classes of AFAs are developed in the future so that it is clear to members of the public exactly in which areas of advice an AFA has expertise,” the submissions stated.

“In particular, IFA recommends there should be a “class” for comprehensive financial planning which will require a Level 7 qualification.”

Great deal for QFEs

And in a separate submission to the Ministry of Economic Development the institute has criticised the proposed fee structure for advisers.

“The fees regulations load costs on Authorised Financial Advisers (AFA) with minimal initial costs for Qualifying Financial Entities (QFEs),” Lyn McMorran said.

She said the QFEs should share a portion of the costs since they will benefit from the assessment system for their advisers of category 1 products.

“This would spread the cost over 10-15,000 advisers rather than 5,000.”

Tainted advice

According to the IFA the way the regulation is being implemented will see major product providers become QFEs with tied agency forces.

It has warned that advisers who are tied agents will almost exclusively offer advice only in relation to products issued by their QFE.

“However, the consumer may not be aware that the advice and range of solutions they are offered are constrained and that they may not have been given the choice of competing products that have either features better matched to their needs or that are lower cost,” Ms McMorran said.