He says the current minimum qualification leaves too much room for poor advice and puts consumers at risk.
The revised Code keeps Level 5 as the baseline for all advisers. It also tweaks the rules around continuing professional development (CPD), asking advisers to plan and record learning that’s relevant to their practice. Tate says the issue is that it’s largely self-determined, and a casual chat about a sale could be recorded as CPD under these guidelines.
He also says we need Level 7 as a standard outside of areas like basic car insurance.
“I don’t believe that Level 5 is high enough on any of the elements, but particularly when you start to integrate a group - retirement, risk and investment management, for example,” Tate tells Good Returns.
“That’s when you’re getting into financial planning, and the implications of that are far greater than if you’re just getting someone’s mortgage rate wrong.”
Tate proposed higher qualification standards at a consultation with FANZ, but got the impression that its proposals were already decided. Other advisers advocated for higher standards to the Code Committee, but it was ‘unconvinced’ that a higher bar would result in better outcomes.
Tate also notes that areas like insurance or KiwiSaver advice are treated as ‘not complex’ for the purposes of regulation - however, the cost of making mistakes is huge. Something as simple as a default KiwiSaver fund at an early age could mean hundreds of thousands of dollars missed out on come retirement.
Notably, insurance disputes through IFSO were at a record high this year.
“I would much rather have the fence at the top of the mountain than have an ambulance at the bottom,” Tate said.
“We need to move progressively to Level 7 and give practitioners plenty of time to get there. For nominated representatives in one area, the baseline should be Level 5, and they should stick within their lane. But anybody that wants to give financial advice should be going through to Level 7 in the next five years.”
The pitfalls of self-determined CPD
The revised Code’s approach to CPD is non-prescriptive and doesn’t set any hard minimums. It also recognises ‘informal’ learning including reading or self-directed study.
Tate says this lack of a concrete definition is essentially “the equivalent of getting credits for picking up rubbish at school.” He also noted that New Zealand has the lowest bar for advisers in the OECD, with Australia, most of Asia and the US requiring a bachelor’s degree.
“You make up your own CPD, you decide whether or not it’s actually CPD based on what you want it to achieve for you,” he says.
“I know they’re trying to be as non-prescriptive as possible, but we’re human beings. Most of us will follow rules if we’re told what they are. And if the regulator is going to be prescriptive at complaint time, let’s be prescriptive beforehand.”
Tate says that regulators should be going to professional bodies and getting specialist input when deciding standards. This could mean sitting down with Certified Financial Planners or chartered life underwriters.
“At the end of the day, turkeys don’t vote for Christmas,” he said. “If you ask the people who are most adversely affected by the raising of education standards, you’ll likely get a negative response. Those who aren’t adversely affected have gotten ahead of the game.”
