Code: From complex to simple

The working group developing a new code of conduct for financial advisers has taken heed of submissions made to it  - but its new simplified draft still leaves some holes to be filled.

That’s the verdict after the group released its first full consultation draft.

The new code, which will apply to all financial advises under the new regime, has 12 standards:

  • Treat clients fairly and act in their interests
  • Act with integrity
  • Manage conflicts of interest
  • Take reasonable steps to ensure the client understands the financial advice
  • Give financial advice that is suitable for the client
  • Protect client information
  • Resolve complaints
  • Not bring the financial advice industry into dispute
  • Have general competence knowledge and skill
  • Keep competence, knowledge and skill up-to-date
  • Have particular competence, knowledge and skill for designing an investment plan
  • Have particular competence, knowledge, and skill for other types of financial advice

The code introduces a minimum level five certificate qualification requirement for all advisers, and requires them to have completed the relevant certificate strands for the type of advice they offer, such as insurance, investment or mortgage advice. If they provide more than one type, they will need to have completed more than one specialist strand.

Financial Advice New Zealand chief executive Katrina Shanks welcomed the code. “For us it’s fantastic that the code has at last been released. It gives some certainty in the marketplace of what the draft code looks like.”

It was not a surprise that the code required a level five certificate as the minimum, she said.

“If you want to build consumer confidence and trust in seeking financial advice, to say you have a form of qualification is a good thing.”

But she said it was appropriate that the requirement for a degree had been put aside for now.

“A degree is a big reach from level five. That’s a very big expectation on a workforce where the average age is 57. But we’re certainly seeking a lot of new entrants who have tertiary education.”

She said it was disappointing that the consultation period was so short. Submissions are requested by November 9. “It’s a big ask to get the kind of quality consultation they’re looking for in that period.”

She said some of the examples used in the consultation draft were surprising – such as that in the “understands the advice” section. There, it cites the example of a financial adviser recommending a client replace a life insurance policy with a new policy with similar benefits.

“Why would you replace it in that case?” Shanks said. “It’s probably not the signal they were wanting to send.”

SiFA spokesman Murray Weatherston said he was “gobsmacked” to see where the working group had got to, compared to their earlier documents, which he said was “at the other end of the spectrum”.

He said more clarity was needed on what would could as CPD under the rules – there is no specification in the draft of a set number of hours required.

Weatherston said there also needed to be more onus put on financial advice providers to prove that their nominated representatives were compliant.

The draft says nominated representatives are deemed to have met the competence requirements if they complete the learning outcomes specified for their role by their FAP and the FAP has the procedures, systems and expertise to give the representative capabilities equivalent to those of an individual with level five.

“It  should say the nominated representative has to complete the learning outcomes specified by their FAP in order to e compliant with the requirements of the FAP.”

He said the question of alternate qualifications had also been left undecided whereas the current code of conduct is very specific.

“Clearly they listened to the response to their first effort but by simplifying it down they are leaving holes still to sort out.”

Compliance expert Barry Read said it was easy to read and understand. “I’m sure there will be bits and detail that needs fleshing out but there’s nothing major in there that sets off alarm bells.”

Advisers should not have trouble finishing level five, he said. “Most good advisers already operate at the level. It’s certificate level, we’re not talking degrees or masters.”

As currently written, the code would allow someone who had done a level five qualification with the core strand and specialist strands for their advice practice – but not the financial advice strand – to be considered qualified.  But that qualification is under review and it is understood that the financial advice strand will disappear and instead become part of core and specialist strands.

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