Full-blown financial planning advice would require close to degree-standard qualifications under the proposed new industry Code of Conduct published last week.
The draft code sets out a minimum standard of either a degree (at a minimum level 7 ranking) in “financial planning, accountancy, business, commerce, economics, finance, or management” or another relevant qualification – “possibly a [yet to be created] Level 6 certificate”.
“We note that the likely Australian and international financial planning requirements for competence, knowledge, and skill in financial planning are increasingly being set at a degree level,” the code consultation document says.
However, the existing batch of 1,800 or so authorised financial advisers (AFAs) would not be required to upgrade their qualifications under the proposed code.
“We are proposing that AFAs authorised under the previous regime should be regarded as having sufficient experience, by virtue of operating in practice under the laws and standards that applied to AFAs,” the consultation paper says.
But the hordes of registered financial advisers (RFAs) and others to be caught by the industry-wide code – which will come into force along with the in-transit Financial Services Legislation Amendment Bill (FSLAB) – may not be so lucky.
“We think, in the absence of other qualifications or designations, exemption from Level 5 would be difficult to justify,” the code paper says.
The consultation document says a “short transitional” period for RFAs who practice ‘financial planning’ may apply where, for example, “completion of Level 5 together with the Level 6 certificate was recognised as meeting the financial planning minimum standard of particular competence, knowledge and skill”.
Minimum competence standards would apply at two levels under the proposed code: set at level 5 (or equivalent) for ‘product advice’; and, level 7 degree in specified subjects, or the mooted level 6 certificate (which takes account of a degree qualification with no financial planning element).
In addition to the minimum competence standards, the draft code covers two other broad areas: ethical behaviour; and, conduct and client care.
The code would require providers to demonstrate compliance with client care standards both at the ‘advice-giving’ and organisational levels.
Advice-giving standards would vary depending on the scope of engagement, the consultation document says, including flexibility on how to meet the product ‘suitability’ requirement for different clients.
“For example, a Financial Advice Provider would be able to limit advice to the products of one (or only a few) providers, if the Financial Advice Provider had taken reasonable steps to ensure the client understood that limitation to the scope of the advice and its consequences,” the paper says.
The consultation also calls for feedback on “additional matters that should be addressed as part of the advice-giving standards”, including:
- cyber risk and cyber security;
- client confidentiality;
- transferring a client from one adviser to another;
- where a trail commission is paid; and,
- replacement business.
Similar to the client care requirement, the draft code includes a dual approach to meeting ‘ethical standards’ at both the point of advice and organisation levels based on principles of “honesty, fairness and integrity”.
“We would welcome your views on whether, and to what extent, minimum standards for ethical behaviour for the provision of financial advice should extend beyond strict legal obligations, to include meeting less formal understandings, impressions or expectations that do not necessarily amount to strictly legal obligations,” the code paper says.
Under the proposals both advisers and entities would have to demonstrate how they comply with the standards including, for example, procedures for dealing with “ethical dilemmas”.
“We want the Code to instil day-to-day behaviours that continually remind, or ‘nudge’, those providing financial advice to honour their ethical obligations,” the paper says. “We are considering whether it is practical and beneficial to implement a straight-forward mechanism as simple as a requirement to acknowledge explicitly that the Code applies, whenever advice is about to be delivered.”
In a statement, Code Working Group (CWG) chair, Angus Dale-Jones, said the new standards would “apply to a wide range people who give financial advice – from quick recommendations through to detailed investment planning”.
Dale-Jones said the CWG was seeking feedback from both industry and the wider public (via an online survey).
“We are hoping many consumers will respond to our online survey,” he said in the statement. “We have also published a consultation document, on which we are seeking submissions. And we will be running a series of roadshow events across the North and South Islands where people will be able to ask us questions and share their views.”
Submissions on the draft code are due by close of business on Monday April 30.