The Financial Advice Code Committee has ruled out mandatory degree-level qualifications for advisers in a consultation paper released last week.
Under the proposed Code tweak the status quo of Level 5 qualifications will remain the minimum standard for financial advisers in “designing an investment plan” – an area that had previously been earmarked for an educational upgrade.
As per the Financial Services Legislation Amendment Act (FSLAA) era professional conduct rulebook promulgated in 2019, the Code Standard 7 ‘investment plan’ clause was set to interim pending a future review.
On considering the state-of-play the Committee decided that “the current minimum standard in CS7 is appropriate”, proposing to drop the interim status.
“In general, there is a lack of evidence that a higher minimum standard of competence, knowledge, and skill will enhance materially the quality of financial advice,” the consultation paper says. “It is challenging to establish a causal link between examples of unsuitable advice, and competence, knowledge, and skill in isolation from other factors, such as ethics or inadequate processes and controls.”
Lifting the educational bar from Level 5 would likely make access to advice more difficult by prompting experienced professionals to exit the industry and raising the costs for consumers, the Committee says in the report.
Degree minimums were contemplated in the draft FSLAA Code – and even in the previous regime dating back to 2008 – for all financial advisers before the ‘interim’ CS7 compromise.
Angus Dale-Jones, Code Committee chair, said the degree-talk was “partly fuelled” by the move in Australia to require all advisers to have university-level qualifications by January 2026.
“The Australian government has subsequently pulled back on that with some exemptions under an ‘experienced provider pathway’,” Dale-Jones said.
However, he said for some complex advice services, financial advice providers (FAPs) might deem degree-level education as necessary.
The proposed Code revisions also clarify that all versions of Level 5 certification (the NZ Qualifications Authority introduced a third iteration earlier in June) would be compliant.
“… the Committee intends to ensure that individuals who currently demonstrate their competence, knowledge, and skill by reference to version 1 or version 2 of the Level 5 Certificate, or an equivalent qualification, do not need to update their qualification or do any bridging course,” the consultation paper says.
Finally, the proposals look to offer further flexibility on continuing professional development (CPD) with the Committee to publish a non-exhaustive list of acceptable ongoing education practices.
“Learning activities can, for example, be structured or informal and can include mentoring, coaching, professional association activities, and development of soft skills, etc., provided they are relevant to competence, knowledge, and skill for giving financial advice.”
Dale-Jones said the CPD regime has moved beyond “counting hours” for financial advice providers.
But he said FAPs must still justify, implement and document that their ongoing education programs deliver the “competence, knowledge and skills” relevant to the advice services they provide.
The mooted new standard would require FAPs to plan and review CPD activities at least once a year.
According to Dale-Jones, the principles-based approach puts the onus on advisory businesses to “think deeply” about the services they provide and “articulate” their compliance programs.
“Some advisers might prefer a check-list but this is not a tick-a-box solution,” he said.
The consultation is open until close-of-business on August 14.