Higher qualifications for better advice

Prior to the RDR, advisers only required a qualification at level 3, equivalent to A-levels. However, the RDR introduced a number of changes and also required financial advisers to be qualified at level 4 or above, equivalent to a certificate of higher education, as shown below.

For advisers, these qualifications matter, since a great part of what they do requires them having adequate knowledge and skill. “Adviser qualifications are as important as ever because what we perform is essentially quite a heavily academic-based role,” says Jaskaran Pawar, a chartered financial planner based in Northampton. “Qualifications breed professionalism in my view. It is less important for the clients themselves perhaps, although I am sure it also helps to instil confidence when a client’s adviser has good qualifications.”

He adds, however, that the variety of qualifications available can hinder more than help. “It would be nice to have just one, but then we work in quite a diverse field so to expect that is arguably unrealistic.”

The FCA requires advisers to hold a Statement of Professional Standing (SPS), issued by one of the accredited bodies listed in Box 1. This statement confirms that advisers have successfully completed a level 4 qualification approved by the FCA. Advisers are also required to complete an annual programme of continuing professional development (CPD) of 35 hours and adhere to the FCA code of practice. This is to be renewed every 12 months.

Many advisers start off shadowing experienced financial advisers, gaining basic training in a range of financial products. This is provided by their employers through masterclasses and on-the-job training. Most employers also pay for examinations, but trainees are expected to study outside working hours. Once an adviser attains the expected level of qualification, employers will maintain a regular level of supervision to ensure they maintain levels of competence and compliance with regulations.

“Financial advice is not straightforward and some of the dependencies are not obvious unless pointed out,” says Jeremy Edwards, an associate partner at Leicestershire-based Martin-Redman Partners. “The drive to more professionalism requires advisers to skill up and clients expect you to be able to assist over quite a wide spectrum. Continuing professional development is possibly more important than the papers taken infrequently during a career, as nothing stays the same and formal exams are always behind the times.”

A recent consultation from the FCA also suggested that IFAs could be subject to additional training or qualification requirements if they are to be involved in the second-hand annuity market, which is set to arrive in April 2017.

RDR and more

RDR introduced a number of changes in the UK retail finance space, including the requirement for financial advisers to obtain an annual SPS and to be qualified at level 4 or higher. As a result a number of advisers decided to quit the industry due to extra studies and exams.

“The RDR forced many to go to level 4 – quite unnecessarily, since people who decided to call it a day had already achieved level 3 and were doing their job perfectly well. But the new rules meant they would need to go back to studies,” says Blair Cann, a senior partner at M Thurlow & Co in Hertfordshire. “After all, how many advisers aged 60-plus wanted to be told they had to go back into the exam room? This particular RDR requirement forced a number of decent IFAs out of the industry.”

But other advisers think the change in qualification levels was important since advisers work in a constantly changing environment and need to upgrade their skills from time to time.

Tim Collyer, a chartered financial planner at Leeds-based Alexander House, says, “I served on a consultation panel where we as a group determined the appropriate standards that should be met by all advisers. Overall, the level decided on was a little higher than the financial planning certificate, but less than half the distance between there and the advanced financial planning certificate.”

He adds, “I was part of a group that felt that the advanced financial planning certificate should be the requirement to give advice; others in the group felt that chartered should be the minimum standard.”

While the change has sent advisers back to their text books, spending long hours studying for the next levels, it has also brought more confidence, especially as they are dealing with clients in a constantly changing environment. Events like the pensions freedoms have brought the role of financial advisers to the fore. But do clients care what qualifications their financial advisers have?

“Clients rarely ask as the letters mean nothing to them,” says Graeme McColgan, a London-based financial planner at Million Plus Financial Planning. “However, I believe that they can tell if you know the legislation and this tends to be as a result of exams or further learning.”

But Mr McColgan explains that qualifications are more important for introducers to know that they are passing the client to a trusted adviser, “This has been an issue in the past where relationships have been tainted or even ruined by poor advisers or poor advice. Inevitably, the issues come back to haunt the person that refers them and often make them reluctant to refer again.”

For a lot of clients, it is important that their advisers have gained the required financial qualifications. They also prefer a chartered financial planner in many instances. Advisers who have the chartered badge say their qualifications have had a significant impact on professional relationships with accountants, solicitors and clients. However, a significant number of advisers approach clients through referrals and so it is unlikely that they ask the adviser for their qualifications.

Is the current qualification setup here to stay? One adviser who wished to remain anonymous speculates that, with new reforms coming in, some of the things that the RDR introduced could be rolled-back and financial qualifications is one of them. While qualifications will continue to exist, he anticipates the structure will be made a lot simpler.

Sound advice?

The bigger concern is whether qualifications automatically lead to sound financial advice? While the RDR has introduced strict rules for eligibility and the FCA constantly monitors adviser qualifications, achieving level 4 or higher cannot guarantee the quality of advice.

“The qualifications are only a ticket to the disco,” says Tony Catt, an Essex-based compliance consultant. “They do not mean that you can dance, although hopefully some basic moves will have been picked up along the way.”

Accredited institutes such as the CII and the IFP provide the skills and qualifications needed to be an adviser, but it is only through practice that the financial knowledge and advice quality will improve.

And qualifications could be very important. “The financial knowledge of the average adviser is very poor,” says Mr Collyer. “In my opinion about 5 per cent know enough to advise safely – if you don’t believe this figure ask any financial adviser how many advisers they know and then how many they would trust to give advice to their mother, daughter or a close relative.”

So what can be done? Even though advisers agree that in order to keep up with the changing landscape, they need to maintain the highest level of qualification, many point to increasing levels of qualifications as a deterrent to young people entering the industry. Mr Collyer explains that it is important for established advisers to work with clients and other advisers in raising their knowledge and understanding.

The personal finance space in the UK has gone through a number of changes in the past few years with things like auto-enrolment, inheritance tax and changes in pension plans. And it continues to be in transition. As such, demand for financial advice is set to grow and advisers must ensure they keep up to speed.

“You often see complaints from advisers about ever-changing legislation while others say that this keeps us in a job. How can you expect to advise on these without keeping up to date and testing yourself along the way?” says Mr McColgan.