Finance reforms set grade low IFA

Nigel Tate. Photo / Supplied

The new president of the Institute of Financial Advisers says the minimum qualification industry workers must now have is the equivalent of a diploma in hairdressing.

Registrations opened last month for the new Authorised Financial Adviser (AFA) status, which all financial planners advising on securities and investment products must have by June 30.

To qualify, they need a minimum of the Level 5 Certificate in Financial Services. Until now there has been no requirement for advisers to have any relevant qualifications and most practitioners have been forced to go back to school.

Tate, who took the IFA helm in July, said the certificate was "equivalent to what a hairdresser is required to have".

"That's not being mean about hairdressers ... but I couldn't really consider them to be in a profession."

Level 5 would not turn the financial planning industry into a profession but it was at least a starting point.

"The gap between that and what we consider to be excellence is quite large."

The IFA needed to focus on that gap, he said. "That's how our members will be able to differentiate themselves from the AFA in the street."

Tate said it was not known how many advisers would apply to be AFAs. The Securities Commission has estimated there will be about 5000 with another 200 organisations applying to be a Qualifying Financial Entity (QFE) - a financial organisation that registers itself rather than each of its individual advisers. Advisers such as mortgage brokers and insurance sales people do not have to be AFAs but many are choosing to qualify.

Ministry of Economic Development figures released to the Herald on Sunday under the Official Information Act show the new regulatory regime has so far cost $11.3 million.

Under the Financial Advisers Act, the Government can levy the industry to recover those costs, and MED said $7.4m of what had been spent to date would be recovered through fees and levies.

Based on the AFA application fee of $1000, the QFE fee of $4250 and the estimated number of individuals and organisations expected to apply, about 80 per cent of the initial costs would be covered.

However, Securities Commission director of supervision Angus Dale-Jones said this did not take into account the ongoing costs of the regime.

"What's more significant is what happens from [July 1], where it is the extent of the regulatory work the commission does to keep the playing field honest."

It was estimated the commission would be allocated $6.6 million in the coming financial year for this work, meaning the industry was likely to be charged a similar amount.

Tate said it wasn't cheap and financial planning firms, which were mostly small businesses, also had to invest in setting up new systems and education.

"For an average practice of a couple of practitioners, we're looking at upwards of $15,000-$20,000 a year, by the time they go through all of that.

"We could lose advisers simply on financial reasons."