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FMA and Code at odds over adviser rules

Advisers have expressed concern that the FMA's interpretation of the Code of Professional Conduct is at odds with what the code says and its intentions.  

Friday, August 23rd 2013, 7:07AM

by Susan Edmunds

Currently the Code Committee is consulting on proposed changes to the Code, and the FMA is seeking feedback on its draft guidance on how advisers should interpret the existing code.

Some advisers have questioned why the committee and FMA seem to be at odds, particularly over issues around how advisers demonstrate the basis of their advice, and whether that requires a full explanation of suitability.

FMA’s draft guidelines indicate that a full suitability explanation should be included each time. The committee, which says it recognises that some advisers feel bogged down in paperwork, says that is unnecessary.

Ireland told a consultation meeting in Auckland: “You do not need to provide 60 pages on every occasion, the idea is that you can tailor it to match the service that you are providing. We looked at the FMA guidance and added in the proposed clarification explaining the basis on which services provided does not extend to a suitability analysis.”

He said the committee was trying to understand where the FMA was coming from. “We’re writing the rules and the FMA is applying and assessing conduct. If we say the sky is pink, the FMA has to go out and review on the basis that the sky is pink.”

But he said there were shades of interpretation as to best practice. While the committee would enforce the high-level rules, the FMA would offer guidance and interpretation of how they thought they should be applied in practice.

He said the FMA’s guidance was based on the existing wording of the code, and if the changes were introduced, its guidance would likely change. “If we adjust that, it will send the FMA off in a different direction. What’s important is that the principles are quite clear.”

Ireland said AFAs generally wanted to comply but were sometime unsure what they needed to do. “They need more guidance to put them on the right side of the ledger.”

About 100 people had turned up to three code consultation sessions across the country. Another webinar is planned for next week. Ireland said there had been a wide range of views expressed.

There was support for proposed changes to CPD requirements but unhappiness at the proposed new wording. Most advisers were not keen on the proposal to allow a “KiwiSaver-only” adviser.  Ireland said he had expected scepticism over the idea that RFAs would want to step up to AFA status, with its attendant regulation obligations, purely to offer KiwiSaver advice.

That view had been expressed at the Auckland meeting, but in Wellington and Christchurch there were also concerns at the rationale of making the pathway possible at all. “The message of the feedback is the concern over the unintended consewuences of opening up the KiwiSaver pathway, that it might create more issues and concerns.”

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