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Code working group reveals proposals

Financial advisers offering financial planning services are set to be expected to operate with a skill level equal to a degree qualification.

Tuesday, March 13th 2018, 6:00AM 3 Comments

by Susan Edmunds

The Code Working Group, developing the new code of conduct, has revealed its proposals and asked the industry for feedback.

The code will fill in many of the details of what operating under the new Financial Services Legislation Amendment Bill, which brings financial advice into the Financial Markets Conduct Act, will be like.

The working group said it was taking a client-centric approach and wanted to provide practical minimum standards to create good client outcomes.

Competence requirements have been one of the key areas on which advisers have been waiting for more information.

The working group is suggesting that, for product advice, advisers should work with the competence, knowledge and skill of someone who had passed the New Zealand Certificate in Financial Services (Level 5).

“Level 5 is the reference point: the Financial Advice Provider must decide how it achieves that level in aggregate – for example by using an if-not-why-not approach. Our focus is on the outcome not the input: the client experience must be equivalent to that given by a person holding Level 5, not that each person giving the advice necessarily has that qualification,” the group said in its consultation document.

This could capture many RFAs who offer insurance and mortgage advice.

Financial planners will be expected to operate at the level of an individual who has attained a bachelor’s degree majoring in financial planning, accountancy, business, commerce, economics, finance, or management, and a qualification in financial planning and advice process.

“Again, an if-not-why-not approach may be used to demonstrate how the outcome is equivalent.  In both cases, persons who qualified under the previous regime as AFAs would be recognised as meeting the minimum standard. We ask how RFA experience could be recognised in a measurable, quantifiable way.”
The working group said measuring good advice outcomes was difficult because they were not easily quantifiable.

“With investment products, the lowest fees or highest expected return may not be appropriate when accounting for a client’s individual circumstances or preferences. With insurance products, the lowest premium or highest level of cover may not be appropriate if the policy has some significant exclusions.”

Working group chair Angus Dale-Jones urged stakeholders to respond to the proposals.

“The standards we set will affect both those who give financial advice and those who receive it, so we want to hear from as many people as possible.

“The new code of conduct will set standards of ethical behaviour, client care and competence that will apply to a wide range people who give financial advice – from quick recommendations through to detailed investment planning. It will cover the kinds of financial advice that many New Zealanders get, such as advice on mortgages, insurance, term deposits, KiwiSaver, and other investments.

“It will also cover computer-generated financial advice – sometimes called ‘roboadvice’. We want to make sure that no matter how customers get their financial advice in future they get a good outcome.”

Commerce Minister Kris Faafoi welcomed the consultation.

“Consumers trust the people and institutions that provide financial advice, so it is important that financial advice is held to appropriate standards,” he said.

“This is one of a range of significant changes to the regulation of financial advice contained in the Financial Services Legislation Amendment Bill, which is currently before select committee.”

Once the new code of conduct has been approved, businesses will have about nine months to get a transitional licence. Businesses will then have two years to become fully licensed.

Read the consultation document here.

Tags: Code Working Group Financial Services Legislation Amendment Bill

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Comments from our readers

On 13 March 2018 at 6:11 am Murray Weatherston said:
An immediate personal reactions - 5 things.
1. The overarching theme “good advice outcome” seems not to mean what I think will be the most likely public interpretation taking the words at their simple normal meaning. That’s hardly clear and effective communication.
Par 52 says “it is important to emphasise that a good advice outcome does not mean the product being advised on performs well.” It seems to me that the concept CWG is describing is more like a good advice process, but that phrase doesn’t have a sexy ring to the consumer. [In the medical field, would we describe a “good advice outcome” as one where the doctor followed good process but the patient died? Or in architecture where the architect followed good process but the building was hopeless for the purpose for which it was designed?]
2 The use of “if not, why not” in the competence section is puzzling. The context in which this is usually used is where a regulator sets down a set of recommendations, but invites users who wish to depart from them to explain why they have departed. But in the draft code, where the requirement is you need A B C and D as a default position, it seems (larger) entities will be allowed to argue for an equivalent (e.g in house training programmes). That doesn’t seem to me to be “if not why not.” It’s more like “Alternate Solutions” in the Building Code.
3. The phrase “in aggregate” gets a solid workout. It seems to mean the sum of what the licence holder entity (the financial advice provider) and the person who provides advice on behalf of the licence holder know and do. That’s a pretty complex concept to measure.
4. CWG’s description of “product advice” and “financial planning’” (a widening of the Bill’s “investment planning”) seems to be further legitimisation of sales masquerading as advice.
5. The non-product selling RFAs (i.e. those who advise as opposed to sell ) are going to love the requirement for a degree in a relevant discipline, Level 5 Core and Specialty and Level 6 financial advice papers. It will be easier to stop advising and become simply a product flogger – need only Level 5 Core and Specialty. Is that really what the reforms are intended to achieve?
On 13 March 2018 at 6:14 am Murray Weatherston said:
One other thing - the timetable seems to have slipped by another 3 months - so is transition day now 1 August 2019?
On 13 March 2018 at 1:35 pm MPT Heretic said:
Good points as usual Murray but the CWG is between a rock and a hard place. They are regulate to ensure 'financial advice' is made available to the masses and clearly they have been told by providers that they cant do that without first classifying product advice as financial advice, and secondly ensuring FAPs dont have to employ Financial Advisers to deliver said advice.
Take KiwiSaver as an example, how often have you heard someone from MBIE/FMA/Govt opine that KiwiSaver is simple and doesn't require personalised advice. Despite it being a wrapper for pretty complex (for the general public) investment options which will impact directly on the current and future financial situation for the majority of Kiwi's. Thats before investors make their own stupid decisions, chasing returns or trying to time markets. Thousands of NZers are already worse off in KiwiSaver that they would have been by being in default funds but according to the CWG that would be an ok outcome as long as the FAP has shown due process around their product advice. They can completely ignore the end outcome for the client as Murray rightly points out

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