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Advisers raise concerns about Code changes

Advisers in Auckland expressed their concerns about proposed changes to the Code of Professionial Conduct at a meeting in Auckland yesterday.

Tuesday, August 20th 2013, 6:45AM 9 Comments

by Susan Edmunds

Changes proposed to the Code of Professional Conduct for Financial Advisers are small tweaks designed to hone a set of effective guidelines for authorised financial advisers, says Code Committee chairman David Ireland.

A consultation meeting was held on the proposed changes in Auckland yesterday.

Ireland said the committee was open-minded and was open to alternatives.

Some advisers were concerned about how existing AFAs could be affected by the Skills Organisatin’s looming changes to the qualifications framework.

These would replace the current standard sets with a broad financial advice qualification, followed by specialist strands.

The Code Committee is proposing code changes in response to that, which would mean advisers’ CPD plans must take into account increasing minimum qualifications.

Existing advisers will not be retested but advisers must satisfy themselves every time they give advice that they are up to the level required of new AFAs at that time.

Ireland said it would be relatively easy for advisers to sit a particular strand if they felt the need to, as a refresher.

The FMA’s biggest issue of concern was advisers’ ability to show how they determined the advice they gave was suitable for their clients. The committee is adding further detail comment to the code, clarifying what has to be included in the basis of services explanation.

At present, the Code Committee’s proposed changes are contrary to the FMA’s guidance. The committee is suggesting that the explanation need not extend to a suitability analysis every time. This would avoid excessive paperwork, which has been a common adviser complaint.

The committee had thought about including relief for DIMS suitability requirements because it is an ongoing service but had decided against it, Ireland said. “We felt we didn’t need to and it would be the wrong signal to send to the public.”

Barry Read, of IDS, expressed scepticism at the Code Committee’s moves to allow a KiwiSaver-only AFA, saying few would want to take it on when it was not financially rewarding.

Ireland said advisers might not wish to advise on KiwiSaver, but it would be useful to make it available to them.  It would be of particular use to QFEs, who might use the KiwiSaver certificate to evaluate staff.

He said it was a way to remove the hurdles to offering KiwiSaver advice so that advisers could have fewer excuses for not doing so.

The Code Committee wants to replace the requirement for 10 structured and 10 unstructured CPD hours in a CPD period with a requirement for 30 structured hours across two years. Ireland said it was a good compromise.

Structured CPD would not include product training that is designed to help with sales. Some advisers at the meeting said that was unfair because product launches provided useful information.

Committee member Michael Staal said advisers should think of it in the same way as doctors learning about medicines. They might learn about a type of drug and that would be structured CPD, but if they were being sold a particular brand, that would not.

Submissions must be made by September 6.

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Comments from our readers

On 20 August 2013 at 10:04 am Ally said:
David Ireland's statement that mandating 30 hours of structured CPD " was a good compromise" is odd. A compromise between what?

The Committee has given no justification for changing the existing requirements. Rather, it is de-basing unstructured CPD, effectively saying it has less merit than structured. Says who ? Does all wisdom reside New Zealand structured presentations?

I think we all know the internet is a vastly more useful source. This proposal to de-emphasise unstructured CPD is clearly an IFA initiative designed o force all AFAs to join its organisation.
On 20 August 2013 at 4:25 pm brent sheather said:
So agree Ally. Its ridiculous that industry organisations like the IFA should be able to manage CPD about foxes and henhouses. Gareth Morgans book had a lot to say about members of the IFA..none of it positive from memory. We should be able to do proper CPD from legitimate providers like the financial times,the CFA institute and vanguard not be forced to attend sales meetings for products that are inappropriate for anyone.
On 20 August 2013 at 6:27 pm Carey Church said:
@Brent, Vanguard of course being a product provider? Or is this some course that I missed that would be of value?
On 21 August 2013 at 8:59 am Independent Observer said:
I agree with Brent. The current allocation of CPDs is lightweight at best, and requires better management & oversight - most likely from credible sources (which may actually include some product providers)
On 21 August 2013 at 9:03 am Brent Sheather said:
Hi Carey

Yes Vanguard is a provider and they provide CPD to advisers with their point of difference being that their CPD actually has some value. So yes this is a course that you, I and most NZers have missed that would have been of value because of our stupid restrictive CPD laws. What hope has our industry got of being respected when most of the CPD, if factored into portfolios, actually makes portfolios less appropriate for investors rather than more appropriate? I refer here to the fact that a lot of subsidized CPD is from small, esoteric, non relevant providers pushing their own small, esoteric, non relevant products.

Brent Sheather
On 21 August 2013 at 9:40 am Ally said:
Vanguard (Australia) offers some excellent educational tools. Far superior to anything offered in NZ. But under the Code proposals, studying via Vanguard will be "unstructured" CPD and therefore of little merit compared with "structured" courses put on by the IFA.
On 21 August 2013 at 11:15 am Carey Church said:
@Brent and @Ally, many thanks for that information. Hope you are both making submissions on adding that content to the allowed courses. Same with Portfolio Construction Forum and Conference held out of Australia (Different to the NZ offering.)
On 21 August 2013 at 11:51 am Murray Weatherston said:
Buried in the original text is this amazing statement:

"At present, the Code Committee’s proposed changes are contrary to the FMA’s [draft] guidance."

Its amazing because that statement suggests the FMA is above the Code.

I think the proper legal position is the opposite. The Code Committee's job is to set the Code of Practice. FMA's job is to ensure compliance with the Code, and if necessary enforce it by taking charges to the Disciplinary Committee.

I think that some of the FMA's draft guidance does not represent the current law correctly, and that FMA are in effect attempting to extend the law.

I will be making personal submissions to the FMA's draft guidance along these lines.
On 27 August 2013 at 4:46 pm Steven said:
I think Michael Staal's analogy might be accurate for investment products but it certainly is not when it comes to insurance. Life insurance advice is often influenced precisely on the reasons (benefits/risks transferred/manner in which the policy will deal with a certain situation) why a particular product is most appropriate and should therefore be sold/recommended. Properly understanding the uses of a policy is critical to good advice and training to promote or assist with selling that product are integral to understanding the policy’s uses. With respect, the analogy given by Mr Staal at the Auckland meeting is incorrect. Life insurance is not the same as a pill for cholesterol, the different brands of which do the same thing, lower cholesterol – this ignores the sometimes very important differences between policies, even those designed to cover similar risks. A better analogy would be chemotherapy, where training on when and how to use which particular type of chemotherapy is vital, the decision resting on the client’s particular type of cancer and other co-morbid factors.

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