Financial advisers including all mortgage brokers will have to follow new regulations aimed at protecting the customers in the near future. The working group released the draft regulation on March 31 for comment and consultation. Under the draft code of practice, mortgage brokers must register to have qualifications and competency checks.

The government passed the Financial Advisers Act in 2008 and the code committee released the draft Code of Professional Conduct for Authorised Financial Advisers. Under the code, there are three levels of financial advisers, but any advisor who offers personalised advice that suits a customer’s personal financial circumstances will need to reach the highest level of qualification – the Authorised Financial Advisor (AFA).

The first level of qualification is to become a Registered Financial Advisor (RFA). However, since RFAs can offer advice on limited products, such as credit card products, bank term deposits, and insurance products (excluding life insurance), most financial advisers, especially all mortgage brokers will need to attain the Authorised Financial Advisor level.

The AFA is bound by the Code of Conduct and must demonstrate that they meet the minimum standards of professionalism. The tests will include aspects of competence, skills, knowledge, client care, and ethical behaviour. Interestingly, the Code also specifies continuing professional training, so that customers are protected by the continual updating of knowledge and training of their financial advisor.

Businesses can register to become Qualifying Financial Entities with the Securities Commission. The business takes on the responsibility for the conduct and professionalism of the financial advisers the business employs.

Mortgage brokers can book in to take the competency tests to achieve the qualification from April 16. Testing for the AFA level of qualification has yet to be approved, but testing for the first level will be available from June 1.

While it may seem confusing, the important thing is that consumers will be protected from unqualified people offering financial advice that could be detrimental to the individual’s financial future. The requirement for ongoing professional training and continual compliance with the code will protect consumers.

The Commissioner for Financial Advisers, David Mayhew, said he expects the final Code by June 1. He said the draft code was “a significant milestone on the road to lifting the professionalism of the financial adviser industry.”

“The Code will impose professional demands which will be new to many advisers and will impact directly on their business practices,” Mr Mayhew said. He urged all financial advisers to comment on the draft code by May 7, so that the final code would be ready for approval by June 1.

Training providers have three years to ensure that the degrees and diplomas they offer meet the standards of the code. Code Committee Chairman, Ross Butler, said the Committee had looked at the educational qualifications from a consumers’ point of view. “We were seeking to ensure those qualifications would give consumers the confidence and trust to know they were of a level and content was in line with the National Certificate in Financial Services (Financial Advice) (Level 5) (NCFS-5),” he said.

Mr Butler said the code was a “road code” for financial advisers. “You can’t go on the road as an AFA unless you show you can understand the code, the act, and the consumer laws,” he said.

While the code is only a draft at present, it is a strong indication of how the qualifications and ongoing professional training of financial advisers such as mortgage brokers will change in the near future. These changes may bring additional requirements on advisers to meet the standards, but will essentially protect the consumer from the unscrupulous advisers without the status of Authorised Financial Adviser.