Call to require all advisers to live by Code

All advisers should be bound by the Code of Professional Conduct that applies to authorised financial advisers, it has been claimed.

Tuesday, July 14th 2015, 6:00AM 7 Comments

by Susan Edmunds

The Code of Professional Conduct for Authorised Financial Advisers drives the way advisers operate their businesses.

It contains a range of requirements they must abide by. The paramount standard is the requirement to put clients' interests first.

Professional Advisers Association chairman Bruce Cortesi said it would solve a lot of the problems identified in the industry if all advisers, whether they were AFA, RFA or in a QFE, were bound by the same code.

He said that would remove much of the need to alter the existing adviser designations.

Adviser Liz Koh agreed the code should apply more broadly.

She said questions that have been raised about KiwiSaver sales practices would be efficiently addressed if all QFE advisers were bound by that same "client first" expectations.

“There’s an ethical consideration that should probably be caught up in the Financial Advisers Act review. AFAs are obliged to put clients first and not do anything just to put more money in their own pocket. Anybody giving financial advice needs to put the client first. It’s a really good reason for the Financial Advisers Act to be reviewed.”

At the combined PAA and IFA conference, Code Committee chairman David Ireland also backed the idea of a code for all.

MBIE said respondents to its survey of financial advisers agreed the Code had resulted in advisers focusing on their continuing professional development and increasing their competence and knowledge.

But the respondents agreed or were neutral about the idea that the code had made them more ethical and likely to promote client care.

The issues paper, which forms the basis for submissions on the Financial Advisers Act review asks: Are the minimum ethical standards for AFAs appropriate and have they succeeded in fostering the ethical behaviour of AFAs? Should the same or similar ethical standards apply to all types of financial advisers?

Tags: Financial Advisers Act

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Comments from our readers

On 14 July 2015 at 10:37 am intrigued said:
I am absolutely staggered that all players in this industry are NOT bound by the Code irrespective of designation - I would certainly hope this anomaly is being put in front of the regulators
On 14 July 2015 at 12:16 pm gavin austin adviser business compliance said:
This has been the way legislation applies since the beginning of the Act. However, in reality all advisers may well be held accountable to "most" of the code by way of Sections 33 to 35 of the act that sets out the conduct requirements of all advisers. Any adviser who ignores the Code is skating on very thin ice in my view. I have constantly told advisers that when push comes to shove section 34 specifically requires all advisers to
On 14 July 2015 at 12:17 pm gavin austin adviser business compliance said:
This has been the way legislation applies since the beginning of the Act. However, in reality all advisers may well be held accountable to "most" of the code by way of Sections 33 to 35 of the act that sets out the conduct requirements of all advisers. Any adviser who ignores the Code is skating on very thin ice in my view. I have constantly told advisers that when push comes to shove section 34 specifically requires all advisers to “exercise the care, diligence, and skill that a reasonable financial adviser would exercise”. My view is that they would defer to a default position that the code is the base line to use when determining if an adviser has exercised the care, diligence, and skill that a reasonable financial adviser would exercise. The primary difference between the different designations is the application of the legislation. The only difference is that a breach of the code is has defined adverse outcomes. Who knows what would happen if an adviser was found to be guilty of a breach of section 33. This is where the review could tidy things up by clearly defining that a breach of section 33 is an offense with a set of parameters for punishment.
On 14 July 2015 at 4:38 pm Referee said:
Fundamentally this should apply to all Advisers as it has been suggested.
My question to others is why should it not?
On 15 July 2015 at 8:26 am Brent Sheather said:
The Code of Professional Conduct is and will continue to be a waste of time until “reasonable financial advisor” is defined reasonably. For example we have had court cases where alleged experts have testified that a fixed interest portfolio could comprise 20-40% in non-investment grade finance company debentures. This might be “reasonable” to the financial advisor concerned but there is no way in the world that it is reasonable to the average NZ pension fund or indeed any pension fund in the world nor is it consistent with basic portfolio theory. Hedge fund maybe, pension fund no, Mum and Dad no. What hope have we got of defining “reasonable” properly when we have FMA board members working for firms who interpret, in their portfolio recommendations, “reasonable” unreasonably and CPD which promotes unreasonable behaviour.
On 16 July 2015 at 12:28 pm intrigued said:
@ Brent I think you have missed the point here.

The topic in hand is based on the need to have ALL advisers operating under the same Code but your tangent is based on Portfolio Construction. Those currently outside the code obligations do not provide investment advice therefore your comments are misaligned.
On 20 July 2015 at 1:24 pm mitsilad said:
I have been in this profession for over 41 years. I never needed a code to put my client's interest first. Is this not an automatic expectation of acting as an Adviser. I say that it is rubbish that the code of plain decency does not apply to all advisers.

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