“Chief executive Charles Anderson said the level of qualification among the SovNet force varied from nothing more than high school exams through to a handful with university degrees.”
Maria Slade, NZHerald
That’s the CE from Sovereign, an insurance company, and he was referring to the need for their 4o0 financial advisers to become certified within the next few months. This begs the question:
Why would you take financial advice from a group that where almost everyone does not even have an undergraduate university degree?
A degree confers two benefits. Firstly it demonstrates to employers that a potential employee has a certain level of intelligence and discipline, and more importantly has the ability to keep learning. Secondly it allows the graduating student employee to send a signal to potential employers that they are serious enough about their working career to take 3 to 4 years out to prepare for it.
While there are plenty of cases where people demonstrate that a degree is an unnecessary requirement for a successful career, it’s astonishing that only a handful out of 400 financial product sales people have a degree.
Insurance is a complex product. To decide whether to buy insurance or not you need to be able to correctly assess your own risk of loss, your ability to mitigate that risk, the cost of the premium, the likelihood of the insurer to pay and the alternative use for money used for premiums. You also need to be able to parse the complex documents that the insurers provide as it is the individual clauses that determine the value of each contract.
Advisers need to take all of this into account, and genuinely help clients assess the options. However insurance agents are usually guilty of instead emphasizing the low probability risks and selling on emotion – and why not, as it clearly works.
But Sovereign and other firms don’t just sell insurance these days. The Sovereign website offers a range of financial products, including investments and homeloans. That means the advisers need to really understand the financial goals, constraints and requirements for their clients. They are dealing in an area that has enormous levels of impact for their clients, and it requires a very high level of trust and competency.
There is plenty of evidence of a lack of honesty and competency in the industry – starting with the horrific advice given to investors in the collapsed finance companies. All in all the new law is necessary.
While I would not expect an adviser to know about Black Scholes or the efficient market frontier, I would expect them to be recommending a well diversified portfolio of assets across asset classes, industry sectors and geographies. I would also expect them to know that churning a portfolio is almost certainly going to result in lower returns, and indeed that funds almost always under-perform the market in the long term.
I believe that the large insurance companies and banks will actually do well out of this new law, at least in the short term. They have the ability and wherewithall to make sure that all of their staff attend the necessary courses and sit the exams in time. AXA has already trained 180 advisers in their own academy, and are tracking to finish before the law takes effect. While some staff will not make the cut in the larger companies, those companies will keep the majority of their advisers, while many other advisers attached to smaller companies or self-trading will fail to do the study.