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Give your ABS a check-up

Advisers are being urged to use the Christmas break to check their business statements and professional development plans are up-to-date.

Wednesday, November 23rd 2016, 6:00AM 5 Comments

by Susan Edmunds

When it released the new Code of Conduct for AFAs last week, the Financial Markets Authority cautioned that it expected advisers to be working in line with it, with updated adviser business statements, by March.

Code Committee chairman David Ireland said the communication from the FMA around the new code was "not how the code committee would have penned such a thing".

He said it was possible that some business statements would not need to be changed much.

“What advisers should take from it is that it’s important to look at your ABS and see whether it is still fit for purpose.

“The code has changed and an adviser’s ABS is supposed to reflect how you are operating to comply with the code.”

He said the Christmas break would be a good chance for many advisers to dust off their ABSs and remind themselves what was in them. “Use this as an opportunity or a prompt. Your ABS is likely to be good for another year, we are not expecting any changes to hit prior to 2018, so it’s not wasted time.”

Advisers should consider their service proposition and business model and make sure the ABS reflected that, he said.

“Another key action revisit your professional development plan and look at it in light of the changes to the competence requirements – is your PDP appropriate, is there any adjustment you need to make both in light of the changes and any change to the way you envisage operating in the year ahead? That should be part of your regular cycle each year.”

The new version of the code recognises new qualifications.

The Financial Advisers Act review will bring big changes for the code as it will have to apply to all advisers.

Ireland said he had been expecting an announcement on what the composition of the committee and its processes and scope might be expected to be in September but it was now due in December, with the release of the exposure draft of the Act.

Financial advice firms that plan to be licensed under the new regime will need to see the new version of the code to develop the processes to demonstrate their capacity to operate in accordance with it – but that cannot be done until the new code committee is in place and the code finalised.

In the meantime, existing code committee members are rolling over on to new terms. But Ireland said it was likely they would have little to do for now. There was no appetite for further change to the code with the FAA review under way.

He said it was likely the positions on the code committee would come up for review as part of that, to ensure it was populated with people who had the right skill sets and perspective to guide the new regime and reflect the broader scope of the code.

Tags: Code Committee financial advisers Financial Advisers Act

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Comments from our readers

On 23 November 2016 at 9:15 am Brent Sheather said:
Oh dear! Yes, far easier to update your business statement and tick a few other boxes rather than do anything that genuinely puts clients’ interests first. It’s obvious to everyone in the industry that the “code”, indeed the entire regulatory environment, is designed to legitimise rent seeking behaviour from vertically integrated vampire squids. In the UK last week an FCA executive said that a key role of advisors was to act as an interface between product providers and retail investors to ensure they got a good deal. Contrast this approach with NZ where we are told that people wearing ASB polo shirts, ie acting for the product providers, are putting clients’ interests first. Very depressing, reminds me of the story “the emperor’s new clothes”.
On 23 November 2016 at 11:14 am R1 said:
“Another key action revisit your professional development plan and look at it in light of the changes to the competence requirements – is your PDP appropriate, is there any adjustment you need to make both in light of the changes and any change to the way you envisage operating in the year ahead? That should be part of your regular cycle each year.”

You have to start wondering when the FMA/Code Committee will start litigating against AFAs who have not correctly ticked the boxes in their paperwork even when they have been doing the right thing by their clients.

It is a shame/crime that the Code Committee and FMA won't take action against institutions for mis-selling their products to small investors and not putting their investors' interests first (e.g. charging unfair fees) where actual harm is being done to people's financial futures but no doubt will be shagging around with PDP misdemeanours. Perhaps the FMA is putting together a guide as to what a properly aligned PDP is because without such a guide who can tell what is. I don't recall getting any training on PDPs and can't recall much in the way of proper CPD training being provided for my needs but I go to the conferences to tick the box on some formal 'training'? The conferences I have attended spent most of the time advising advisors on how to improve the business for themselves, not their clients.

Be afraid, very afraid while the institutions get on and vacuum up clients from AFAs leaving the industry and continue to provide bad advice with impunity.

Mr Ireland, can you please provide any specific examples of CPD courses and seminars that are truly appropriate for an AFA to be able to add value for their clients. Please do not cop out by not replying or saying it depends on who you are and your background, blah, blah, blah. I just want specific examples of what you consider to be appropriate for an AFA’s professional development as an advisor, not a business person.
On 23 November 2016 at 12:36 pm Graeme Tee said:
Having read the new code and noted the changes I don’t see how any advisor who has been doing the right thing by their clients would have to change their ABS.

It appears to me that the changes will make it easier for the large scale, operators’ business models to avoid the old “suitability” test (Code Standard 9) and still not have to put clients’ interests first (Code Standard 1). Code Standard 8 allows large scale operators to limit advice to their own products with agreement ie duress, of the client. Code standard 3 allows platform users to call themselves independent when choosing from a limited pool of products. Most of the media attention is focussed on new qualifications which are irrelevant to most existing AFA’s but doesn’t raise standards for RFA’s who are not covered by the code.

All in all, another example of regulatory capture by the highly resourced and well connected banks.

Mr Ireland’s comments on CPD are worth pursuing – I attended the Advisers Conference and, to my dismay, virtually all of the content was about how to make your business more profitable, easier etc. Mr Ireland, please show me an example of CPD training that actually addresses Code Standard 1 ie putting clients’ interests first. That would be good but doubt I will get a reply.
On 23 November 2016 at 3:19 pm AFA Muggins said:
Ah, yes, Brent alludes to a now famous quote:

"The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

An article well worth reading.

I think it applies to most big banks, given they are all ultimately interlinked.

On 29 November 2016 at 8:24 am Brent Sheather said:
The silence is deafening but not surprising. A judge once told me, after a few drinks, the best advice if you ever do anything stupid is "deny, deny, deny then go dog". Obviously good advice – if you can’t talk your way out of something then don’t say anything. My view is that it's time for lots of changes in NZ, across the board, out with elites and compromised experts, regulatory capture and crony capitalism.

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