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Submissions due today on code changes

There may still need to be some refinement of a new provision in the Code of Conduct for Authorised Financial Advisers that will make it easier for them to offer limited advice to clients.

Tuesday, February 23rd 2016, 6:00AM 5 Comments

by Susan Edmunds

The new version tries to tackle the problem of advisers being restrained in offering limited advice to clients who do not need a full financial plan.

Both the Ministry of Business, Innovation and Employment and the Code Committee, which administers advisers’ code, have acknowledged that some advisers have struggled with how to satisfy their requirement to prove the suitability of their advice in the context of the clients’ overall financial situation, when someone only wants guidance on a particular subject.

The committee has proposed replacing the "transactional advice" concept with a wider "limited advice" idea in the code, with relief from the need to assess suitability when advice is requested on a particular product, without a transactional element.

The client needs to initiate the identification of the financial product or products in question or already hold the product. They also must instruct the adviser or the adviser’s employer to provide limited advice.

That had prompted some advisers to express concern that clients would not know to ask for limited advice.

But Code Committee chairman David Ireland said clients would not need to ask for “limited advice” specifically.

“What is required to trigger the suitability relief proposed, under the exposure draft wording at least, is for a client to instruct an adviser to provide financial advice on a particular financial product without considering suitability of the financial products in light of the client’s overall financial position.

“No wording formula has been prescribed for this to occur. A client does not need to say ‘I would like limited advice please’ in order to bring the mechanism into play. The code standard expressly provides for AFAs drawing the client’s attention to the ability to opt out of a full suitability assessment. Client first means AFAs should be helping clients determine the level of advice that is most appropriate for their needs,” he said.

But Ireland said the committee was open to the prospect of tweaking the wording.

“We are aware of some concerns with the proposed wording, and accept that some finessing of the relief mechanism may be warranted to overcome legitimate concerns over its workability in practice. That’s why we released an exposure draft before finalising.”

Today is the last day for submissions on the exposure draft of the code changes. It will be submitted for approval by the Financial Markets Authority next month.

Tags: Code Committee

« FMA: Conflict not a problemLVR restrictions to be reviewed »

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Comments from our readers

On 23 February 2016 at 8:33 am Charity said:
This area began with a poor piece of guidance prepared by FMA. The concept of limited advice is not in the Code. The Code already provides that the AFA and client need to set the scope of service (Code Standard 7). The Code also provides that a financial adviser is only permitted to provide services that the AFA has the competence to provide (Code Standard 6). That should end the enquiry. Not all advisers provide all kinds of advice. Not all advisers are competent to say that a client needs advice in an area in which the adviser doesn't provide advice. Some only provide risk advice. Some only provide investment advice. Some provide mortgage advice. So now an adviser has to tell the client that he must assess the client on all of these areas of his financial life (something he may not be competent or willing to do) unless the client uses the magic words that the client wants limited advice. This is what happens when lawyers (who have never been financial advisers and may have never been in front of a financial adviser client) try to legislate how financial advisers do their job. Let's turn this around. Apply the same rule to lawyers. Every time a lawyer meets with his client, he must advise them on all aspects of his business and personal legal life unless the client says he wants limited advice on a particular topic. The lawyer must give the client advice on his wills, trusts,estate planning,corporate matters, patents, trademarks, litigation, mergers, acquisitions, property transactions, divorce and family law matters. The client protests that many of those matters don't pertain to him. The bill will be high if you investigate those matters. The lawyer says that he only does property law and couldn't possible comment on the other areas. He doesn't have the competence. Just like this legal example, financial advisers and clients decide what the financial adviser will do for the client. It's called freedom of contract. The client has the right to determine that he only wants advice on a certain area. The adviser has the right to determine that he will only provide a certain kind of financial advice. Leave it alone. It's already addressed in the Code.
On 23 February 2016 at 9:48 am Brent Sheather said:
Another missed opportunity from the Ministry of Investment Banking and the Code Committee, which is not altogether surprising. Consider the reality of the whole limited advice question as it relates to investment – typically mum and dad with limited investment assets or experience have heard about some stupid investment that their friends have just bought and are considering losing their money as well. Financial advisors could add value if they said we can’t advise on that but what we can tell you about are “these investments” which have been sanctioned by the regulators. “These investments”, the ones they are allowed to advise on without considering the client’s full situation, should be limited to highly diversified funds which the advisor has some liberty to determine. I’m thinking of global ETFs and highly diversified NZ shares funds for example. That’s the sort of product that is relevant to most people with limited investment capacity and experience and the only sort of product that should be granted relief under this modification to the Code. As I say it is pretty obvious to anyone in the industry what makes sense to someone with $20,000 but unfortunately given the regulators lack of experience and/or conflicts the obvious is rarely obvious.

This change would mean better outcomes for consumers but almost certainly lower profit for the finance sector therefore it really is a dead duck. What we are left with, as usual, is regulations designed to largely preserve the status quo, a bit like managing conflicts of interest rather than avoiding them.
Brent Sheather
On 23 February 2016 at 11:21 am w k said:
@charity: msg has been sent many times in the past, however, it seemed to bounced back each it was sent - mailbox exceeded quota, need translation, brain-dead, etc.
On 27 February 2016 at 10:35 pm EdgarJohnson said:
Mainly due to the gobldy gook from our adviser about compliance We have sacked our adviser. It really isn't fair that the ministry of Business and all that should so tie-up advisers that they become more of a liability than a help. Please get some common sense into the process.
On 28 February 2016 at 10:44 pm w k said:
pls watch this clip. it's a fine example of restricted advice.

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