Questions and Answers  

Skills Financial Services event – Code Working Group update

We have chosen not to attribute these questions and answers, aside from those made by Angus Dale-Jones. But in the interests of open conversation we are sharing all the questions from our Q & A forum. All of these Questions & Answers have been transcribed in full.

This page contains Question and Answer information taken from the Financial Advice Code Working Group update event in Auckland, hosted by Skills on 10 May, 2018. This Q & A features discussion between Financial Advice Code Working Group Chair Angus-Dale Jones and various Financial Services and Insurance industry participants. 

Audience member question: Is there any value, for the Working Group to spend some time with a larger QFE and then case study the existing training and see in practice how it might work? That might be really valuable.

Angus: We are actually having discussions with a particular QFE to see whether we can have some of their people come into our next meeting which is on the 30th of May. That is precisely something that we would like to do.

 

Angus - question: How do people react to this? Do you get the direction that we’re trying to move in? 

Audience member answer: I’m quite comforted to hear you say this, I came into this with expectation that saying 'I am a Financial Advisor' meant something, that it had some skills and qualification and I certainly understand where you’re going with combined expertise – that not all 25,000 odd people need to have that degree of expertise. But framing it the way that Nominated Representatives might be able to rely on a process, whereas Financial Advisors who have individual expertise [rely on individual expertise] really makes sense.

Angus (replies to comment): The one thing that the bill makes very clear is that we can’t restrict what Nominated Advisors do. So Nominated Representatives and Financial Advisors need to be able to do everything. The Code can’t create a ‘block,’ to say that you can’t give certain types of advice. But that’s completely different from saying ‘well you get to your competence tick-off through different routes.’

 

Audience member question: If you’re talking about the distinction between Financial Advisors and somebody else, I know there’s a bit of a bun-fight about calling people who sell a product a Financial Advisor, or not. The more I think about it, the more I think that makes sense. If someone goes along for financial advice they’re expecting more than the kind of competence that somebody needs to sell a product.

And in insurance even when you’re just selling a product you still need competence to understand that product and understand whether that client needs that product, whether it’s fit for purpose and what it’s going to do for you. I think that’s an obvious area where those people don’t need to go through the same level of training.

As somebody who says 'come along to me, I’ll look after all your insurance requirements to protect your family property, I’ve got a multitude of different providers. I’ll package the deal for you properly.' For me it’s quite similar to the likes of public trust, you need legal advice on a very specific area. But you don’t call them lawyers. And clients know that if they’ve got other legal advice needs, they’ve got to go to lawyers.

Angus: I think you make a really good point and over the last three years, over all the time that MBIE has been reviewing this legislation, my own personal thinking has devolved. MBIE’s central theme is: ‘wherever you create a dividing point, then that encourages arbitrage’ and what they’re trying to do, they’re trying to avoid those arbitrage points between different types of advice.

So they’re saying let’s have a piece of legislation that applies to everything and have a Code that sets standards across the board that allows you to demonstrate those standards, that allows you to represent those standards, in ways that allow you to represent how complex things are. This is such a sensitive area, as to what is financial advice and what isn’t financial advice, and I am sure that select committee will think about whether the definition is right.

All we can do, as a Code working group, is respond to the definition that ends up in the legislation. At the moment in the bill, it’s a very broad definition and I started off thinking ‘this is going to be really difficult to do’ and now I’m getting more and more confident that we can do it and do it really effectively.

We can’t get anywhere close to making any final decisions about that until we know where Select Committee are going with those threshold definitions of what is financial advice? And what is a Financial Advisor?

 

Audience member question: I agree with your comments around combined expertise. It is quite complex. I think there’s some real subjectivity around the assessment of in-aggregate and I guess the cautious approach with regards to a QFE and their nominated representatives would be to not just rely on systems and processes but also to take a more cautious approach in terms of regulators. So I think the path we could go down is probably creating an externally validated qualification for our Nominated Representatives, rather than relying on systems and processes and potentially updating our training across the board. And it feels like it might be a more cost effective [approach] as well. And I feel that’s where the QFEs will probably head. What are your views on that? And also with regards to ‘if not, why not?’ What are your views on that?

Angus: As for ‘if not, why not?’ that concept goes back to section 66 of the Financial Advisers Act relating to how the QFE world operates. The Code does not apply directly to QFEs, but you need to come up with standards that are equivalent to the Code. So if you’re not complying with what the Code requires then that’s where the ‘why not part’ comes in; you need to explain why not and the alternative that you’ve got in place.

What can we do in the competence space is to say ‘if it’s not 100% a human being doing the job all by themselves, then this in-aggregate approach is the rule: otherwise you need level five, or you need a university degree, or whatever it happens to be.’ If that person is operating in a team environment, or with computer systems, is the qualification actually necessary? Or is it something else, or do you need to approach it in a combined way? It’s difficult to work out the best approach here, which is why we are consulting on it to get peoples' views.

What we’re trying to do here is not set a perfect qualification for financial advice because I don’t think such a thing actually exists. What we’re trying to do is upskill the industry so we boost the trust that consumers have in financial advice and we’re just taking a punt at what a good basic qualification is. Some people are going to be a bit underqualified and some are going to be a bit overqualified. 

 

Angus (statement): In our consultation document we’ve deliberately not gone into CPD because we want to sort out all the noise with competence first. But we may be a bit more creative with regards to what we do with CPD and that becomes doubly important now that we’re in an environment where technology is changing things so rapidly and people need to constantly keep up with change. 

What Financial Advisors are doing now is going to be very different in 10 years time. If we don’t have some mechanisms built into continuing learning that encourage people to upskill, so that they change with their environments, we’re missing a big opportunity. So I’m less concerned about whether the level we get to with that gatekeeper qualification is right, I’m more concerned about behavioural incentives to get people keeping their skills up-to-date with regards to the environment in which their working. And I think the Code can play a really useful role in that space.

We’ve got much more flexibility than the existing Code committee in terms of what we do, in terms of transition. So it might be that we require, for Nominated Representatives, more reliance on organisational processes for the first [unspecified] number of years of the regime to give organisations time to upskill their teams to a certain level.

We had a sense that the qualifications that we’re considering would work really well for new entrants but we were less convinced about people who’ve been practicing 10 or 20 years and whether those people should be going through that. And that relates to transition as well and maybe we need to be a bit more imaginative about recognising or testing peoples' prior experience, where that is measurable. These are themes bouncing around, we’re very open to people giving us late submissions and ideas as they think of them.

 

We want your Feedback
Changes to the Code and qualifications are still in the early stages. As a result it’s important we get feedback from the industry to ensure outcomes are fit for purpose.

If you’d like to provide feedback or ideas contact:

Colin James: colinj@skills.org.nz in relation to the review of qualifications.

Angus Dale-Jones: code.secretariat@mbie.govt.nz in relation to changes to the Code.