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STAFF PAPER ON AUTHORISED FINANCIAL ADVISER COMPETENCE

20 April 2009

The Development of Competence Standards for Financial Advisers

The National Qualifications Framework

The National Qualifications Framework ("NQF"), administered by the New Zealand Qualifications Authority ("NZQA"), is designed to provide nationally recognised standards and qualifications, and recognition and credit for a wide range of knowledge and skills. Unit standards of competence, and national certificates and diplomas, are registered on the NQF.
Tertiary education organisations such as universities, polytechnics, and private training establishments are able to seek accreditation with NZQA for the delivery of courses and programmes of training and assessment against the standards and qualifications registered on the NQF.
Unit standards of competence describe what a person needs to know or what they must be able to perform. They provide the basis for assessment, but they do not specify the delivery of learning or training programmes. In essence, they are definitions of outcome - the standards of performance that a person must reach in order to be objectively assessed as competent - rather than course content.
As the established national framework for defining qualifications and standards of competence, the NQF offers an opportunity to standardise definitions of competence for all financial advisers. The financial adviser profession covers a large and varied group of people, with vastly differing backgrounds in learning and practical experience. The NQF enables objective articulation of measurable competence standards for the entire profession.
Standardised articulation of competence provides a fair and transparent way of assessing people's abilities, enhances certainty (for advisers, employers, educators and regulators), and facilitates qualification portability across the profession. It allows any education provider accredited to deliver the standards to compete to provide training and assessment services. It also allows assessment to occur in the workplace by registered workplace assessors. It enables industry and the regulator to place reliance on the already well-developed systems established in the education system for assessing competence and arranging the delivery of learning. It provides demonstrable evidence to help support the international recognition of New Zealand advisers. Objective, industry-agreed standards will increase certainty regarding acceptable levels of professional skills and competence, contributing to the reduction of compliance costs - and simplification of regulatory monitoring - for all categories of advisers.
In addition to adviser regulation, the NQF is also available for defining standards for personal financial education. Personal financial education - such as financial literacy initiatives in schools - is generally set at lower competence levels aimed at "consumers", while this paper is concerned with competence for the "suppliers" of financial services. However, there are valuable system-wide advantages to using the NQF not only for advisers' professional competence but also for personal financial education. Not least of these is the creation of an environment where education organisations are able to deliver a spectrum of finance related disciplines, to the benefit of the entire community. Learning pathways in finance and related skills can be developed from high-school literacy levels all the way through to the competence levels required for professional financial advisers.

Industry training

The Tertiary Education Commission ("TEC") is the crown agency responsible for leading the government's relationship with, and investment in, the tertiary education sector. It promotes a tertiary education system that is responsive to government and stakeholder priorities.
The TEC, together with industry, invest in Industry Training Organisations ("ITOs"). Each ITO has a legislated role to play in developing the industry training system for the industries under its coverage. ITOs are established pursuant to the Industry Training Act as the mechanism for setting industry skill standards, providing skill and training needs leadership, and developing arrangements to deliver industry training.
ETITO (www.etito.co.nz) is the ITO for the financial services industry. As such it is responsible for developing unit standards for the financial services industry generally and, more specifically, for financial advisers. ETITO has worked with the financial services industry since 2002. Its coverage of the industry as the ITO for financial services was gazetted by the Minister of Education in 2007.
In conjunction with the financial services industry, and in parallel to the development of the Act, ETITO has been developing competence standards for financial advisers using the National Qualifications Framework.
Securities Commission staff have been engaging with ETITO to ensure that the Commission is included as a stakeholder in the development of a framework for financial adviser competence standards, competence assessment and training, and to ensure that Commission staff are well placed to inform the Commission itself (i.e. the Commission in its capacity as a statutory decision maker), the Commissioner for Financial Advisers, the Code Committee, financial advisers and their employers, consumers, education providers and other interested parties.

National qualifications - and their component competence standards - for financial advisers

To date, ETITO has finalised two National Certificate qualifications: the National Certificate in Financial Services (Level 4) and the National Certificate in Financial Services (Financial Advice) (Level 5).
These qualifications, developed by ETITO and its finance industry consultative committee, have focused on "baseline" competence: the skills that a financial adviser should have as a minimum. Competence standards for specialised classes of financial advice activities have not yet been written.
Most relevantly for AFA competence, in March 2009, the National Certificate in Financial Services (Financial Advice) (Level 5) was registered by NZQA on the NQF, following extensive development coordinated by ETITO. It can be found at www.nzqa.govt.nz. The Level 5 National Certificate would be the equivalent of a "driving test": 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.
The Level 5 National Certificate is intended for advisers - operating without direct supervision and outside a rigid "template" work process - who:
1. "Give personalised and specific advice based on needs analysis of a wide range of data,
2. Determine appropriate methods, make recommendations and lead the client, based on this analysis,
3. Have full responsibility for the nature, quantity and quality of outcomes,
4. Possess a broad knowledge base with substantial depth in some areas,
5. Work for the client,
6. May specialise in investment advice, insurance advice or do both." (Source ETITO website www.etito.co.nz)
The Level 5 National Certificate is set at a level that we anticipate would assist in obtaining international and trans-Tasman mutual recognition of financial adviser training.
Now that the Level 5 National Certificate has been registered, any accredited training provider is able to develop programmes of training and assessment for - or that incorporate - the Level 5 Financial Advice unit standards.
Ideally ETITO, industry and educators will collaborate to progressively develop additional standards - at, below and above Level 5 - providing a common currency for articulating a wide range of financial advice competence requirements. In July 2008 ETITO registered the (lower) Level 4 National Certificate, which we expect industry may find of use in helping to articulate requirements for some categories of employees and agents of QFEs.

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