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Working group lays out plans

A preliminary draft of the new code of conduct to cover all advisers is expected by next March or April, the working group developing it says.

Monday, August 14th 2017, 6:00AM 4 Comments

The group held its first meeting last week.

Chairman Angus Dale-Jones said it had been almost a day-long meeting of the nine people involved.

The group has released a document outlining how it will operate. Dale-Jones said it was important that the industry understood what it was doing.

The document notes that the new code is an opportunity for a step-change in advice conduct that would benefit customers and advice businesses.

“It builds on the extensive work already done by the current Code Committee. Through the consultation process, it presents all parties with an opportunity to be aspirational about how customers experience financial services and how appropriate advice can help.”

It said in preparing the code, the draft working group had the benefit of the work done on the current code.

But the scope had widened, it said, from an occupational code for AFAs to a service code capturing advice given by all individual advisers. The new code would be able to differentiate different types of advice.

The code must satisfy new requirements, too, to improve the availability and quality of advice – which it said were potentially contrary objectives – and conduct considerations would become more directly relevant.

There has been criticism of the lack of practising advisers on the group.

The document said that decisions would be made with appropriate consultation, including with the FMA, those who were representatives of the advice industry and those who were representatives of consumers.

“CWG members are not representatives of particular sectors, but sit on the CWG for their individual knowledge, skills and experience. All members are involved in monitoring the adequacy of all aspects of consultation.”

Consultation would likely include formal documents requesting submissions, roadshows, focus groups and online requests for views.

Consultation on concepts was likely in October and November this year and a preliminary draft was expected in March or April next year.

Consultation would be needed on how minimum standards should apply to the increased range of advisers, businesses and digital services; and to the different types of advice.

The group said it would need to consider the extent to which the standards of the existing code were relevant and the need for additional standards.

It would also need a methodology to determine where advice types or products justified changes to the minimum standards.

The group would have to ask whether any universal baseline competence standard was required, what transitional requirements would be appropriate and how ongoing training could be used to broaden skills as adviser roles evolved.

“The CWG will operate transparently. That does not mean publishing everything, but it does mean being open, in a timely fashion, about policy deliberations (including in the statutorily required impact analysis document) and progress. Similarly, the CWG encourages those involved in consultation to be publicly transparent too, especially on policy thinking.”

Tags: Angus Dale-Jones Code Committee code working group conduct financial advisers FMA

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Comments from our readers

On 14 August 2017 at 7:19 pm Murray Weatherston said:
An Open letter to CWG – are you sure you are on the right track?
The publication of the CWG’s paper “How the Code Working group will operate” gives us a roadmap to the way they will be approaching their task.
However after an analysis of what they have said vs what the law says, I have to wonder whether they are actually on the right road. There are plenty of things in their paper which make me wonder whether they don’t think that their task is actually to review the whole regulation.
In just the first 3 paragraphs, there were 3 things that set my antennae twanging
• “Opportunity for step-change”
• “Opportunity to be aspirational”; and
• A concentration on how customers feel.
CWG starting point seems to me to be “code of professional conduct for financial advice services”. While the current Code is part of occupational licensing of AFAs, these words suggest the focus going forwards will be on financial advice services.
But the words they quote are merely a heading in the Bill.
I do not see why an interpreter of an Act would put more importance on what the heading says or does not say in preference to what the text of the actual section says .
Proposed new S32 of the FMCA in the Bill says that the “Code must provide for minimum standards of professional conduct that must be demonstrated when regulated financial advice is given”.
The Bill [as currently writ] provides for “minimum standards”. The CWG seems to think it will have an opportunity to be aspirational. Minimum standards and aspirational standards are not the same.
The comparable section to s32 in the FAA says “provide for minimum standards of professional conduct that must be demonstrated by authorised financial advisers.”
The new Code will be applied to current AFAs, other individual financial advisers and entities who are licensed under FSLAA whether staffed by humans or computer algorithms.
I think there is an alternative interpretation to the words that CWG has interpreted to say the focus has moved, which is that s32’s “whenever financial advice is given” actually refers to “by these individual advisers and firms”.
In this context, the Code needs to be widened in scope to cover these other individuals and licensed entities, but it does not need to be turned upside-down and inside-out as I interpret CWG to be saying using words like “step-change’. The Oxford Dictionary defines step change as “ a significant change in policy “ ; Collins says “A step change is a sudden or major change in the way that something happens or the way that someone behaves.”
I don’t think a change from individual licensing to entity licensing meets either of those definitions.
I noted a number of other places where the phrase “authorised financial advisers” from the FMA was replaced by the phrase “whenever [regulated] financial advice is given” which did make me wonder that the translation from the current FAA to FSLAB was done by a Find and Replace function.
The CWG paper places a lot of store on the FMCA emphasis on conduct. A Find search of FMCA revealed that there are 522 instances of the word “conduct”, 23 of the word “code” and 15 of the word “professional” in the whole 381 pages of thatAct, and exactly no instance of either “code of conduct”, “ professional conduct” or “code of professional conduct”.
S32 talks about a “code of professional conduct”, which is a entirely new term in the context of the FMCA. In other professions, the Code of Professional Conduct refers to the set of Rules by which practitioners are bound – e.g. Bar Associations, and real estate agents.
Why would a Code of Professional Conduct in the financial advice space not refer to the set of Rules that bind practitioners when they are giving financial advice.
The FAA sets out code standards for AFAs; I would have thought it would be a simple matter to extend those rules to other financial advisers engaged in providing advice on other disciplines like personal Insurances, Mortgage Broking and General Insurance – without chucking everything out and starting again.
Of course, as compared to the law and legal advice, which is only opined by individuals, financial advice in the new regime will be given by both individuals and firms (including robo-firms). There would need to be in my opinion, a separate Code to be applied to entities. There are things that an individual could demonstrate e.g. competence and CPT that I don’t see a firm could demonstrate for itself, other than saying the firm is required to ensure all its financial advisers and nominated representatives meet the individual competence requirements of them, or meet the individual CPT requirements.
In several places the CWG paper talks as there is required to be a balancing act between advice availability (A) and advice quality (Q). The legislation adds both A AND Q as objectives , but I don’t see anywhere that says the objective is either A OR Q, choose one. Those of us who think the regulators have been captured by the VIOs think this is another cap doff to the institutions with an implicit “if you increase A, we’ll let you off with a lower Q.”
In this same regard there is a reference open to a similar interpretation of a possibly lower qualification requirement for an “in house process situation”.
There are several possibilities raised in the WHAT? Section that give me the heeby-jeebies, and lead to my unease that the CWG might be trying to redesign the review.
• Given the almost universal renunciation of Cat 1/Cat 2 and personalised/class distinctions during the review, it is hard to see why the possibility of their resurrection is even raised.
• Re limited advice, in its 2016 Revision of the Code, the Code Committee finally got it right and knocked FMA’s controversial limited advice guidance out of the ground for 6. Why would that need revisiting?
• The suggestion that there might be different (lower?) standards for in-house product advice.
Finally, I have no idea what “specifically making “advice process” a less absolute concept, with additional principles as to how it may be adjusted to circumstances” actually means.
I think it important that these issues be discussed early on in the process before any hard lines are drawn.
On 15 August 2017 at 8:35 am Brent Sheather said:
Murray you go to a huge amount of effort. Obviously you should have been on the Code Committee but it is also clear that, as you challenge the status quo, why you are not on the Code Committee.

In my opinion, and this is indicative of the sort of government we have, captured by industry, instead of getting people who represent retail investors we get committees dominated by people who represent industry or professionals who purport to represent retail investors but really represent their own clients.

In most cases these people have limited, if any, knowledge of what best practice looks like because they work for institutions that do not embrace best practice or they have no knowledge of the industry whatsoever. No surprises therefore that after lots of “effort” retail investors outcomes are not representative of best practice.

Before anybody takes exception to those comments how else can you reconcile the fact that nobody resigned when the FMA interpreted “putting client’s interest first” as being different things for different institutions i.e. if you wear a polo shirt just selling the high cost rubbish originated by vertically integrated organisations because you can make more money that way is all good. Outrageous comments obviously made to accommodate the profits of vertically integrated organisations.

The system is corrupt and the corruption originates at the very top i.e. government. The common denominator is money and just about everyone is picking at the corpse of retail investors.
On 16 August 2017 at 2:11 pm AFA Muggins said:
Murray and Brent,
I agree wholeheartedly with all of your comments.

We see the problems as advisers.

The public are largely unaware of the problems and how it impacts them.

The Government doesn't really care about the problems.

The regulator is so deeply entrenched in consulting to the big end of town and regulatory capture, that they don't have perspective.

The whole system is horribly, horribly corrupt as Brent points out.

And now the final moves to corporatise all 'advice'.
On 17 August 2017 at 8:18 am Brent Sheather said:
Hi AFA
Thanks for that. What is amazing is that there has been no response from the CWG. No response from Chairman Angus and the other perpetrators. Reminds me of some advice I got from a Judge once…. that person said if you are ever accused by the police of doing something wrong the best strategy is to say nothing.

Regards
Brent Sheather

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