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STAFF PAPER ON AUTHORISED FINANCIAL ADVISER COMPETENCE

20 April 2009

Existing qualifications that can be substantiated

We envisage that the Code Committee, in providing for standards of competence, will take into account existing qualifications in the financial advice sector.
Where an existing qualification has a well-evidenced record of combining structured theoretical learning and assessment, together with robust and transparent assessment of practical competence in the workplace, and has been followed by a substantiated programme of continuing profession training ("CPT"), the Code Committee will need to consider whether to recognise that in the Code as the requisite standard for a particular class of adviser.

[DISCUSSION POINT A] What qualifications do you consider would potentially meet those criteria (theoretical, practical, CPT)? For each qualification you list, please describe the type of financial advice activity (e.g. comprehensive financial planning) for which it is suitable. Is the qualification you name the only one suitable for that type of financial advice activity?

Universal use of NQF

We suggest using the NQF to define standards of adviser competence in a generic and measurable form, in light of the factors set out in paragraph 21. If the Code Committee agrees and adopts the NQF to define standards of adviser competence, we propose to liaise with ETITO, industry and educators to work towards defining existing qualifications using NQF standards. It would mean that over time any accredited education provider could compete to deliver the requisite training. It would facilitate the fair and objective recognition of a large range of New Zealand and overseas qualifications.
We acknowledge that NQF standardisation of all financial advice qualifications would be likely to take several years to complete. Accordingly, we would recommend a transitional approach, where some existing qualifications (that meet the criteria above - theoretical, practical, CPT) are listed in the Code as being the interim standards of competence for certain specialised classes of financial advice activities.

[DISCUSSION POINT B] Do you agree with the introduction, progressively, of NQF definitions for all adviser qualifications? Alternatively, what suggestions do you have for approaches not based on the NQF that take into account the factors set out in paragraph 21?

Two-step approach for existing advisers without substantiated qualifications

If the NQF is adopted to define standards of adviser competence, we envisage there will need to be a two-step approach for existing advisers wishing to become AFAs, if they either do not possess formal qualifications or have some qualifications but do not meet the criteria above (theoretical, practical, CPT).

Step 1

First, we anticipate that in carrying out its obligation to ensure an AFA applicant meets the levels of competence, knowledge and skills specified in the Code, the Commission would require some evidence of the applicant's current competence.
In the absence of other independent evidence of current competence, an assessment of "baseline" competence would be a valid alternative. We envisage that this could be achieved using an assessment system or process that, focuses on assessing the core competence that every adviser should have. It would not extend to cover specialist subject areas for which some AFAs would have no need.
We envisage that such an assessment system could be administered under ETITO's supervision. Assessment methods necessarily must be appropriate for the competence being assessed, so the assessment system would probably comprise a test or examination to assess theoretical competence plus, for example, a requirement for applicants to submit a portfolio of evidence to demonstrate practical competence in the workplace.

[DISCUSSION POINT C] Do you support the concept of a baseline standard? Do you support the proposal to assess applicants against the baseline standard? Do you consider Level 5 to be an appropriate baseline standard for AFAs?

Step 2

Second, we anticipate that for AFA applicants wishing to undertake specialised classes of financial advice activities, some confirmation of theoretical and practical competence (relevant to those activities) may be required in addition to the generic baseline assessment.
The effect of this two-step approach is that a universal, generic baseline assessment will be applied, plus "top-up" theoretical and/or practical requirements depending on the class of work the adviser will be doing. As the baseline assessment provides evidence of current competence, substantiation of the "top-up" can be proportionately relaxed.

Bridging periods for existing advisers

The Act anticipates that to be authorised, all existing advisers will need to satisfy the Commission that they currently meet the level of competence specified in the Code. Consequently there is no "deemed" or automatic authorisation of existing advisers.
However, we are interested in your submissions regarding short bridging periods for applicants who do not initially meet the standard for authorisation as an AFA, to enable them to continue practicing in their current field of work while they further develop their skills up to the requisite level.

[DISCUSSION POINT D] Should existing advisers whose baseline assessment is unsuccessful be allowed to practice as AFAs for a short period to enable them to further develop their skills? If so, what restrictions should be imposed (for example, work under supervision)? How many months do you consider reasonable?
[DISCUSSION POINT E] Should existing advisers who successfully pass baseline assessment, but do not meet the requisite "top-up" requirements for a particular class of work, be allowed to practice as AFAs in that class for a short period while they develop the additional skills? If so, what restrictions should be imposed? How many months do you consider reasonable?

Other financial advisers

Codified competence standards will be mandated only for AFAs, not for other advisers.
QFEs are required to satisfy the Commission that they have the capacity to ensure their adviser staff and agents exercise reasonable care, diligence and skill. We plan to explore with potential QFEs how they may voluntarily use NQF standards (with assistance from ETITO) to map the training and competence arrangements currently used in their businesses. Our objectives are to standardise skill levels, make training provision more competitive and accessible, promote portability of qualifications, reduce compliance costs and simplify regulation. We anticipate that this mapping exercise could be undertaken by QFEs incrementally over the next two to three years.
Similarly, we will encourage professional associations representing Category 2 advisers to collaborate with ETITO in the progressive development of NQF standards suitable for their members.

[DISCUSSION POINT F] We are interested in your views on the use of NQF standards more broadly than for only AFAs.

Culture of professionalism

Our regulatory approach to adviser skills and competence envisages a framework more expansive than mandated requirements, where core obligations are supplemented by a culture of professionalism. Rules alone are not enough: incentives that encourage professional responsibility are essential if the financial adviser industry is to earn public confidence in its members' competence and integrity.

[DISCUSSION POINT G] We are interested in your ideas for regulatory or other strategies to help promote a culture of professionalism across the adviser industry.

We look forward to receiving submissions on the discussion points above and on any other matters you wish to raise in relation to AFA competence.

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