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Finding Goldilocks solution

A package of Financial Adviser Act (FAA)  changes that brings in competency and ethical obligations for all advisers is likely the “goldilocks” solution that has the best chance of becoming law, it has been claimed.

Monday, November 30th 2015, 6:00AM

by Susan Edmunds

The options paper was released last week, outlining potential changes to the FAA.

It gave three packages of options, although it said they were not set in stone.

The first brings in minor changes, and is intended to cause less disruption to the industry.

It retains the current boundaries around who can provide advice, gives all advisers the requirement to comply with the same obligation to put their clients’’ first, streamlines and unifies disclosure obligations, updates terminology and allows roboadvice.

The third, most extensive, option makes all those changes and introduces a designation of salespeople who are not subject to the need to put clients first and can only sell their own organisation’s products. It also gives industry assocations more  of a role in regulation.

But David Ireland, chairman of the Code Committee, which manages the Code of Conduct for Authorised Financial Advisers, said it was the second package that looked the closest to being the “Goldilocks” solution for the Ministry of Business, Innovation and Employment. He said it was not too revolutionary, nor too light-handed.

“Package one is a bit light and package three is quite extensive change, two is the closest to Goldilocks.”

The second package includes all the improvements in the first, removes the distinction between class and personalised advice, requires licensing of adviser businesses and creates a subset of expert financial advisers who deal with complex matters – more specialised than just the existing category one products.

Ireland said it seemed to build on the work done in the Financial Markets Conduct Act licensing regime.

He said one of his few reservations about the options paper was that, under the second package, while all advisers would have competency and ethical obligations,  only “expert financial advisers” would have to adhere to a code of conduct.

He said that might not be a complete improvement on the current situation that has been criticised for creating an uneven playing field for advisers, because authorised financial advisers are bound by a code but registered advisers are not.

Ireland said it would be better to have the code apply to all advisers with the option to tailor it to deal with different types of advice. It was more nimble than the legislation, he said.

The options paper is light on a lot of detail about how its proposed changes would work.

But Ireland said that was a positive thing.

He said it reduced the risk of consultation being waylaid by discussions of peripheral detail.

“It’s an opportunity for those engaging to make what they will of those components and then explore them. Get the framework right and the detail follows. For example, the second packages has the option of expert advisers but has fallen short of saying what that term might be for them 0 that’s something industry can work out, they don’t risk the distraction of putting in a term people could argue about.”

Ireland said it was important that interested parties started to engage with the process early and di not wait until the end of February, when submissions close.

Tags: David Ireland Financial Advisers Act

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