Large numbers of general insurance brokers could leave the industry if proposed new qualification standards are brought in, IBANZ has warned.
The working group developing the new code of conduct for all financial advisers has released its first round of proposals, indicating what it would like to include in the new rules.
One of the most controversial was a suggestion that insurance brokers currently operating as registered financial advisers (RFAs) would need a level five qualification just to continue to offer product advice. If they offered a full insurance planning service, they would need a degree and a relevant level six diploma.
IBANZ said it would drive people out of the industry if RFAs working in fire and general had to get a degree to continue.
“We believe this approach completely ignores reality,” the association said in its submission.
IBANZ said it was not possible to separate product advice from planning in general insurance. Much of an insurance adviser’s work would be captured by the financial planning definition.
But IBANZ said general insurance clients were not worried about the academic qualifications of their brokers – what they were most concerned with was their knowledge and experience of insurance markets and insurance products.
Requiring a degree would lead to many experienced insurance brokers leaving the market, IBANZ said, “and result in a complete failure to achieve the aims of the legislation.
“The numbers of experienced brokers and advisers will be severely reduced and the compliance costs of employing new staff will be excessive.”
Grandfathering
The code working group’s proposals said while current authorised financial advisers will be deemed to have met the requirements by virtue of having operated under a stricter regulatory environment thus far, and not need to sit any extra qualifications no matter what the code required, registered financial advisers would not.
Chairman Angus Dale-Jones said the group was keen to hear from the industry how the prior experience and learning of RFAs could be properly recognised. He said it was hard to set a guideline around what was useful experience and what was not.
“We are aware that some RFAs, who have not been required to become AFAs, have considerable experience and are interested in views on how that experience could be recognised in a measurable, quantifiable way.
We think, in the absence of other qualifications or designations, exemption from level five would be difficult to justify. For financial planning, one option would be for the code to provide a short transitional arrangement for experienced RFAs, where completion of level five together with the level six certificate was recognised as meeting the financial planning minimum standard of particular competence, knowledge and skill.”
IBANZ said there should be credit given for a career spent in the industry. Advisers should not be forced to complete qualifications that did not improve their knowledge.
“It might be that RFAs are required in the two-year safe harbour period to complete units covering ‘advice and legislative framework’ but the RFA could be given credit for past experience or learning in the insurance area.
“We have the Australia experience to draw on here. It does not seem sensible for an experienced insurance broker having to sit the insurance modules under a level five certificate. The question would be how would this be measured and assessed? We would suggest an assessment be done to determine their competence.”
A new recruit would need to do the level five qualification, IBANZ said, but an experienced broker could be directed to only if they failed
an assessment.
“What we don’t want to occur is to reduce the number of advisers, as at the end of the day, the intention of the legislation is to make sure retail customers get access to good advice.”
IBANZ said the insurance brokers currently operating as registered financial advisers came from a wide range of backgrounds and had sometimes acquired experience and qualifications in other countries. There needed to be a mechanism to recognise that, too.
The code should reflect that local knowledge was important, the association said, and the adviser needed to have knowledge in the area being advised upon. But forcing experienced advisers back to study basic standards would be meaningless.
IBANZ was also critical of the proposed overarching code principle of “good advice outcomes”. It said that would be seen by consumers as meaning the performance of the financial products, not the advice given – even though the code working group expressly said that was what it wanted to avoid.
New industry association Financial Advice NZ was also critical of the proposals, and agreed there was a risk the qualification rule could reduce the size of the adviser force.
“Many current life, disability and health insurance and mortgage advisers would be deemed financial planners under the proposed new definition.”
If they did not want to complete a degree, they would either leave the industry or offer less fulsome advice services, Financial Advice NZ said.
“This will force many practitioners towards what is being described by the consultation paper as product advice,” the association’s submission said.
