In his submission to the Code Committee on its rewrite of the Code of Professional Conduct for Authorised Financial Advisers, he wrote: “Prior to the Code the better financial advisers were aiming to obtain a level seven qualification, via a graduate diploma and CFP/ CLU. The need to obtain level five before getting AFA discourages new entrants from continuing on to the Level seven qualification.”

He said level five was only acceptable as an interim measure or for advisers dealing with category two products.

“The Code Committee and FMA need to make it clear that in the medium term the baseline assessment for category one advisers should be increased above level five, preferably to level seven. One of the lessons of the recent financial crisis and the collapse of finance companies is that the level of theoretical expertise required of an investment and/or financial advisers is at a high level. The level of technical competency displayed by NZ advisers has in general been low.”

The FMA highlighted similar concerns in its report on stakeholder feedback last week. It said there were broad concerns among those it spoke to that the adviser licencing requirements were not strong enough, there was a perception that insufficiently-qualified advisers were operating, that the RFA designation was meaningless and that QFE advisers were under-regulated.

IFA chief executive Nigel Tate agreed there was a problem. He said the regulations provided a baseline but it needed to be seen as that. “It’s not a measure of quality or competency.”

He said the standard was too low for financial advice to be considered a profession. A degree was needed, he said. “But I think that’s still five or 10 years away at the moment.”

Level five might be appropriate for risk advisers, he said, but when people got into more complicated products, and clients were tying up large sums of money, advisers should be qualified to at least level seven.

But he said AFA numbers were so low that the industry could not risk scaring people off by making the hurdle for entry any higher. “I don’t think we can enforce greater standards and exclude more people.”

The FMA said adjusting the minimum requirements was an issue for the Code Committee to consider.

But chairman David Ireland said the committee was not concerned at the moment. He said they had seen a genuine effort to raise standards and embrace professionalism among AFAs.

He said when the committee was not actively reviewing the code it was looking at things it could do to bring up standards.  But he was confident that the principles in the code were a good basis for AFAs.