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Platforms no barrier for independence

Use of platforms will no longer be a barrier for advisers wanting to claim independence, the latest version of the draft Code has confirmed.

Friday, July 9th 2010, 7:48AM

The change was explained in an 'issues' document released on Wednesday, where the Code Committee summarised the major submission points on the first draft Code and outlined its responses in an effort to help inform consultation feedback on the second draft.

Submissions in reference to independence said platforms that are not exclusively aligned to particular products should not be caught.

The Code Committee's response was that authorised financial advisers (AFA's) who use platforms that are based on ‘independent choice' may still be referred to as ‘independent', even if some limits may apply. However limits that are binding on the AFA that result in a  wide range of products or providers not being available will result in the AFA being unable to be held out as independent.

Some submitters also argued that the mere receipt of commission does not impact on independence.

However the Code Committee's response said that commissions directly impact on independence in the eyes of the consumer, regardless of the measures taken by the AFA to avoid being influenced in practice by commission received.

"It is the perception that is of main concern with the restrictions imposed under Code Standard 3 with a high bar set if an AFA is to be held out as independent."

There was also suggestion that there should be a minimum threshold for independence under which certain ‘benefits' are acceptable.

The Code Committee said that the concept of a ‘minimum threshold' would open up the Standard to possible gaming and shades of grey. It said any benefit received would taint the perception of independence, unless remote or insignificant.

A number of submissions in the issues paper were also raised on the competence alternative schedule, with questioning over whether there is to be any relief for advisers part-way through recognised alternative qualifications.

The Committee said relief for those part-way through a recognised qualification was not considered appropriate in light of the range of pathways provided and the core requirement of encouraging public confidence.

It also said relief from any Standard Sets for foreign qualifications was not considered appropriate, in light of the Securities Commission's new exemption powers.

"Requirements of the Standard Sets in general are too New Zealand specific to justify foreign relief without compromising the integrity of the required standards."

The committee also said it considers that attainment of Standard Set C is the most robust way of validating competence in the advisory process.

"Relief granted by virtue of holding a designation should be considered as a transitional measure, with the expectation that relevant organisations will move their course content to a level equivalent to NQF level 5 or higher in due course. Therefore the eligibility sunset applies to this recognition."

A question around Code Standard 10 (now Code Standard 8) around the suitability of personalised financial advice was whether a previous client suitability analysis remains relevant provided all new risks relevant to the specific advice are explained.

The Committee said the Code Standard requires an ‘up-to-date' understanding of the client's position, thus the existence of a previous suitability analysis may not suffice, particularly where the advice relates to a  different product or context or the clients' circumstances have changed.

Code Standard 13, protecting clients' money, property and information as well as Code Standard 14 keeping proper records have been deleted because the subject matter is broking services, for which a separate regime now exists and the new Code Standard 12 on record retention now expressly allows for records to be retained in electronic form.

Code Committee chairman Ross Butler says when considering the second draft of the Code, the Committee had to consider the feedback received from its numerous public consultation meetings and the 173 substantive submissions received in response to the draft Code.

It also had to take on board the significant changes that were made to the regulatory regime for financial advisers pursuant to the Financial Advisers Amendment Act that was passed at the end of last month.

 

 

 

« Three public meetings on new Code plannedCode Committee wants to align review with 5-yearly MED update »

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