Have your say on new financial adviser competence requirements

Submissions to the Securities Commission on the development of competence requirements for “Authorised Financial Advisers” (AFAs) under the Financial Advisers Act are due by 5.30pm on 29 May 2009.

Under the Act, a financial adviser will need to satisfy the Commission that he or she meets the standards set out in the “Code of Professional Conduct” to become authorised.  This requirement is expected to come into force by late next year, and the standards will be developed by a committee soon to be appointed by the new interim Commissioner of Financial Advisers, Annabel Cotton. 

The submissions to the Commission will be shared with the Code Committee. 

The Securities Commission estimates that 5,000 people currently working as financial advisers will need to be authorised sometime during 2010 in order to comply with the Act.  Financial advisers must be authorised under the Act, unless:

  • they advise on or undertake investment transactions in respect of only Category 2 products (broadly lower risk or less complex products); or 

  • they are an employee of a Qualifying Financial Entity (QFE) advising on or undertaking investment transactions in respect of Category 1 products issued by their employer.

The Code’s requirements will be mandatory only for persons who are authorised under the Act, although all advisers will have an obligation to exercise reasonable care, diligence and skill in providing advice. 

A QFE will be required to provide appropriate training to its employees and agents to ensure they have the competence necessary to exercise reasonable care, diligence and skill in their financial advisory work, and to satisfy the Commission that it has the capacity to do this.  The Commission estimates that up to 15,000 QFE employees will be required to have received appropriate training.  Another 3,000 Category 2 advisers, who will need to be registered but not authorised, will also need to ensure they are appropriately trained to meet the reasonable care, diligence and skill requirement. 

The Commission wants industry feedback on the costs, benefits and other impacts (for example, the effects on competition or on trans-Tasman business efficiency) on the methods it is proposing and on alternative approaches that would achieve the Act’s purpose of encouraging public confidence in the professionalism and integrity of financial advisers.

Proposals for AFAs

The approach proposed in the Commission’s staff paper for the competence standards for AFAs is:

  • to use the existing New Zealand Qualifications Authority (NZQA) framework in order to deliver the training and assessment of competence standards (by way of unit standards) that will in due course be specified in the Code.  Using the existing framework will allow any accredited education provider to provide training for financial advisers

  • to assess competence through theoretical and practical tests, as well as continuing professional training

  • for authorisation to be a two-step process, where the adviser does not possess formal qualifications or their qualifications do not meet the standards.  The first step will involve the adviser either providing independent evidence of his or her current competence, or passing a “baseline” competence assessment.  For advisers wishing to undertake specialised classes of financial advice activities, it is proposed that they will also need to pass “top-up” practical and/or theoretical requirements; and

  • to allow a bridging period for existing advisers to pass the new assessments, or to retrain should they fail an assessment.

The existing body tasked with developing unit standards for the financial services industry within the NZQA framework is ETITO.  To date, ETITO has finalised two financial services-related qualifications, one of which is specifically intended for advisers (the National Certificate in Financial Services (Financial Advice) (Level 5)).  It is proposed that other financial advice competence requirements will be developed at below and above the Level 5 Certificate.

Approach for QFEs

The Securities Commission has indicated that, over time, it would like to see QFEs using the NZQA framework when training their advisers.  This is to ensure an independent and objective measure of skills training within the QFE.  More information about this approach is expected later this year.The Commission has also indicated that its staff will shortly issue a public discussion document on QFEs to obtain industry views on key aspects of the proposed QFE policy.  Chapman Tripp will prepare another Brief Counsel when this document is released. 

How to make a submission on the AFA competence requirements

Details of where submissions should be sent and a copy of the Staff Paper on Authorised Financial Adviser Competence are available at: http://www.seccom.govt.nz/downloads/seccom-staff-paper-afa-competence.pdf

Chapman Tripp is happy to assist with any submissions and advice on the new financial advisers regime.  Please contact any of the lawyers featured.

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