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[Opinion] Four simple steps to a new code

Lest anyone think we are always negative, the Board of SIFA wants to put forward a simple alternative framework for the Code development. It merges a submission SIFA has made to the Select Committee on FSLAB with a proposal we had made earlier at a Stakeholder Engagement Group meeting in Wellington.

Tuesday, April 3rd 2018, 3:32PM 5 Comments

by SiFA

There are four simple steps.

Step 1:
Get the Select Committee to change the wording of proposed Schedule 5 s32 of FMCA as we recommended to the Select Committee.

FSLAB proposes “The Code must provide for minimum standards of professional conduct that must be demonstrated when regulated financial advice is given….” The words underlined are the ones that appear to have led the CWG to the conclusion it is writing a service Code. We think that is where one set of their difficulties starts.

We submitted that the section should be amended to read:

“The Code must provide for minimum standards of professional conduct that must be demonstrated by any person who is providing financial advice”. We have underlined the different wording. This immediately reintroduces the possibility of an occupational code for human advisers.

Step 2
At law, persons can be human (you and us) or non-human (e.g. companies and other entities).

If our suggestion is adopted, then it opens the possibility of an occupational Code for human advisers, and a different Code for entities. That is the Code can be comprised of two targeted Codes, one for humans and the other for non humans with no boundary (or intersection) problems – you are either human or you are not...

Step 3 The human code.
We believe that the current Code Committee has got it pretty right (albeit at the third iteration) in the current AFA Code (except perhaps for their dropping of a Diploma earned before 2011). So why not build on that for the other advice specialties. So how?

Draw up a seven column by 19 row matrix.

In the header row, fill in each column after the first with the name of a specialty – e.g. investment, personal insurance, fire and general insurance, mortgages, trustee services and other consumer credit.

In the first (header) column, write in each row a code standard from the current AFA Code.

In the second column, write the Code for AFAs for each standard – for starters, just write the standard without any of the explanatory material. [Note 1]

Then pick any Code standard and look at each of the specialties to see whether that wording (from the AFA Code) could be applied to the Code for that specialty – yes or no; and if no, why wouldn’t it apply and could there be any possible simple changes to the wording that could make it work.

Repeat that process for each of the other specialties for that Code Standard.

Then pick another standard and follow the same process. Repeat consecutively for all 18 existing Code Standards.

If you agree with our view of the AFA Code, then the 18 cells in the investment column of the matrix should be Yes.

That leaves the other 90 cells or squares in the matrix to be looked at (18 standards by five specialities).

Clearly the alternative qualifications for non investment specialties would have to be looked at, but we reckon there would be good industry support for the principle of NZ Certificate Level 5 for Core, Specialty and Financial Advice being the standard minimum, but with the ability to use alternative qualifications that would differ by speciality. This is the same approach as was followed for AFAs.

We haven’t actually done the full exercise ourselves, but we would be pretty confident that 80% of the squares would give a good fit.

That doesn’t leave too many to concentrate on finding a compromise wording for.

Step 4 Entity Code
Write a separate conduct Code for entities using Code Standards that would apply to entities. Don’t try to mangle the human Code Standards to fit. There will be no boundary problems because the person providing the advice can be only human or an entity, and never both.

Our guess is that following such an approach the CWG would get further in very short time than they have in the 8 months to date. And we don’t think that resulting code would be a three hump camel like the CWG has come up with to date.

We have an idea as to how we could test and prove the concept of this framework inside of a month from go to whoa for well under $50,000. It would involve a workshop of 10 experienced practitioners from right across the business model spectrum for each financial advice specialty, moderated by a specialist facilitator. We wonder if someone in officialdom might be interested in asking us more.

Note 1: CS1 would have to be amended because “putting the client first” has been imported into a statutory duty.

On behalf of the Board of SIFA
Murray Weatherston


SIFA is dedicated to the professional interests of New Zealand's unbiased financial advisers

Tags: Financial Services Legislation Amendment Bill SiFA

« [Opinion] Serious concerns over Code Working Group behaviour[Opinion] The future of advice is at risk »

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Comments from our readers

On 3 April 2018 at 6:47 pm Carey Church said:
Murray, that all sounds incredibly sensible to me, but... maybe too late to change the process now? Regards, Carey
On 4 April 2018 at 8:49 am Compliance Guy said:
We are rounding the corner into the home stretch Murray, and you are now suggesting we put the horses back in the stable. I agree the jockeys (CWG)should have drug tested for not challenging the wording but they have already given themselves a pat on the back for ramming home that square peg into the round hole.
On 4 April 2018 at 9:44 am Paul Flood said:
While not having examined this proposed framework from SIFA, I am not sure that the wording of the initial sentence of section 32 of FSLAB is the main problem with the proposed CPCFAS (Code of Professional Conduct for Financial Advice Services, or "Code" hereafter) consulation paper from the CWG.

While introducing a distinction between legal persons on the one hand, and entities on the other, might have independent merit, it alone can't fix what is rotten with the proposed Code. The broader problem as I see it is that the CWG has taken a mistaken view of their combined obligations under section 32(1)(b) and 32(3)(a) of FSLAB.

Taken together, those stipulate that the content of the Code MUST (i) "provide for minimum standards of professional conduct"..."including minimum standards of particular competence, knowledge, and skill that apply in respect of different types of financial advice, financial advice products, and other circumstances", and (ii) "The Code - MUST identify different types of financial advice, financial advice products, or other circumstances" for the purposes of providing for those minimum standards of particular competence.

The SIFA framework (as described above) appears to address these requirements, exactly by distinguishing the different types of financial advice and financial advice products (investment, personal insurance, fire and general insurance, mortgages, trustee services, and other consumer credit), and then creating the conceptual space to allow for different minimum standards for each of those (or the same standards, where appropriate).

So why hasn't the CWG made similar distinctions between different financial advice products and services when drafting the Code consultation paper, especially given that section 32 of FSLAB requires that they MUST do so? As stated above, I think that they have taken a mistaken view of this obligation, thinking they have met it solely in virtue of a distinction between 2 different types of financial advice (and ignoring the option of distinguishing between different types of financial advice product).

The CWG states clearly (paragraphs 170 and 171 in their Code consultation paper) that they will only be distinguishing between 2 types of financial advice service (namely, product advice, and financial planning), and will not distinguish between different types of financial advice products for the purposes of the minimum standards of particular competence, knowledge, and skill. The CWG is "interested in views on this approach" (para. 171).

Here is my view: You can't capture what it is that we do as financial advisers without making reference to the different types of financial advice product that we advise on. This is something that the SIFA framework acknowledges

As a risk adviser, what I do shares some things in common with what an investment adviser does, what a mortgage adviser does, and so on. But the differences between the types of products that we deal with is so vast even the FSLAB itself (Section 431C) distinguishes between advising on financial advice products (which the CWG proposes not to distinguish between), and INVESTMENT planning.

Don't get me started on the sleight of hand that saw the CWG substitute the narrow concept of "investment planning" in the FSLAB with the far broader concept of "financial planning" in the Code consultation paper, and the huge ramifications that could have for the thousands of RFAs. Did they argue for this switch? No, they simply assumed it (see paragraph 45 of the Code consultation paper.) A Bachelor's degree in finance or economics to give personalised risk advice insurance - yeah right!

On 4 April 2018 at 10:06 am NormanStacey said:
It should never be too late to do it well.
Good work Murray.
On 4 April 2018 at 11:30 am P Jones said:
Hallelujah. At last someone talking common-sense. As a life agent of over 25 years experience, all in my own business in the real world, I would willingly give up a day of my time free if I was asked to be a participant in the life insurance facilitation. It would be time well spent if I could influence influence getting get rid of the BS that is coming down the line from regulators who appear to have little knowledge of the industry they are trying to regulate.

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