Financial advisers may have to meet a competency test. But will it be tough enough?

From the end of 2010 financial advisers who provide comprehensive financial advice or advise on complex investments must be authorised by the Securities Commission.

To become authorised, advisers must meet the required standards of competency, knowledge and skill. These standards will be prepared by the recently appointed Code Committee for approval by Annabel Cotton, the Commissioner for Financial Advisers, and the Minister of Commerce. The Commissioner for Financial Advisers is a new position within the Securities Commission.

We’ve responded to a discussion paper released by the Securities Commission outlining the issues and options. Our submission argued competency standards must be set high enough to bring about a real “lifting of the bar” for advisers. This means accepting that many advisers may leave the industry, as they will not be able to meet the new standards.

We’re concerned the industry will lobby for standards that will allow most practising advisers to remain. If this happens there will be little improvement in standards.

Standards need to be higher

One of the discussion paper’s proposals was to use existing “Level 5” National Certificate qualifications as the basis for “core” or “baseline” competency standards. These would operate rather like a general driver’s licence – fine for most circumstances (but in some areas a specialist extra competency would be required).

We oppose this approach because we don't believe it will raise standards sufficiently.

The competency standards will apply to advisers who are approved to advise on complex investments and provide financial plans. Therefore, the baseline or core standards should include comprehensive and demanding requirements for competency in assessing direct investments such as finance-company investments, company bonds and shares, as well indirect investments such as managed funds.

The  Level 5 qualifications don’t appear to offer this depth of knowledge. They’re also not equivalent to the knowledge level required for a university degree – and so aren’t demanding enough.

Cost implications

We accept that higher standards may raise the cost of getting financial advice, but we see competency and access as two separate issues. Standards are about raising the minimum level of competency for advisers. If competition, improved disclosure and other laws don’t produce affordable advice, then there are other solutions – including subsidised access to advisers (in the same way there’s subsidised access to GPs) or direct government involvement in giving advice.

More from consumer.org.nz

• Read our submission on the AFA competency discussion

Got a question or comment on this topic? Share your views and experiences with other Consumer members...