FAA Review - Designation
This is likely to be contentious, particularly given the responses to Barry Read’s post on Good Returns – some souls concerned that others will be advantaged with the potential review of the designations being considered. In the last post, I suggested that all financial advisers should have a minimum level of qualification in their area(s) of operation.
I also mentioned the overlaps that would inevitably occur when suggesting alternatives to the status quo.
And so it is with the education/designation areas.
Financial adviser should be a designation available and applicable to qualified financial advisers only, who, by definition, offer clients a range of solutions, some product based, others not.
It is clear that the current designations, RFA and AFA, are confusing, non-descriptive, and inappropriate.
All financial advisers, suitably qualified, are designated with the post-nominal – QFA.
The QFE structure is entirely appropriate in a free commercial market and vertically integrated organisations (product providers with aligned distribution units) should be free to operate and offer their wares to the public as legitimate operators.
But the inherent underlying desire of product providers to see what we now refer to as ”QFE advisers” recommend and sell those providers’ products, should be reflected in those entities' re-titled designation -Licensed Sales Organisations (LSOs).
Re-designated Qualifying Financial Advisers who elect to work with LSOs should be entitled to use the post-nominal QFA, but must in their disclosure statement explain the limitations placed on them by the LSO contract into which they have entered.
Organisations such as Kepa, Newpark, etc., are not product providers, are not vertically integrated, and cannot therefore be regarded as LSOs. Those who operate under the umbrella of such organisations should be qualified and entitled to use the post-nominal as QFAs
Disclosure statements from QFAs and LSO representatives should reflect the status and function of each, thus leaving the consumer in no doubt with whom they are engaging.
I believe that this is an elegant solution to the designation issue, with only two valid descriptive designations, clearly identifying for the consumer the scope, function, and status of the individual with whom they are dealing.
Qualified Financial Advisers retain a status reflecting their function, and LSOs that do not wish to incur the significant expense attaching to the education initiative, are free to train their distributors in their in-house products to an appropriate level of competency.
As always, there has to be a trade-off somewhere to adjust the focus and maintain consistency.
In this context, agency agreements are rendered obsolete, as a now designated QFA forfeits the vesting rights to renewal commissions, in favour of allowing the consumer to control the financial aspects of the relationship, where a product-based solution provides for this type of remuneration structure.
So while QFAs dispense with agency vesting rights, those within an LSO (currently QFE) stand up to be identified as distributors of their selected provider’s products, and dispense with the confusing and non-descriptive tag of QFE Adviser.
I understand that no proposal will meet with universal approval, but with the aim of simplifying, identifying, and defining, I present the proposals on designation for consideration.
The overlap with regard to designation occurs in the Standards area – more later.