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The Code – issues for advisers (Part Three)

Part Three of Your guide to the new code looks at the vexed issue of grandfathering and how to make a submission. If you want your voice heard time is running out.

Friday, April 27th 2018, 8:41AM 9 Comments

This is Part 3 of the commentary looking at the new Code of Conduct and issues, opportunities and challenges for adviser businesses. It is written by John Berry, a member of the Code Working Group (CWG), in his capacity as a commentator on NZ financial markets and as CEO of Pathfinder.  This commentary therefore contains his personal opinions and is not written on behalf of the CWG. 

I’d encourage you to read Parts One and Two of this commentary before this final instalment.  This part is very short - covering thoughts on how to submit, as well as ethics and grandfathering/transitioning for advisers.  First up, how to submit.


Writing submissions takes time, which we’re all short of.  You have a couple of options:

  • use the submission format provided by the CWG and answer the questions provided (see link at the end of this article – you can choose which questions you want to answer, you are not obliged to answer them all) or
  • you can simply write your ideas on specific issues (you do not have to use the CWG submission form nor reference the questions provided)
  • Then send your submission by email to code.secretariat@mbie.govt.nz before 5pm on 30 April.  That is only days away.

Different perspectives

I’d encourage you to think about issues from the three angles below (which are not listed in order of importance):

  • You as an adviser – What is the impact on your business or future career as an adviser?  This could include your thoughts around business compliance costs, retraining requirements and changes you may need to make to your client service. 
  • The advice industry as a whole –  Will proposals lead to higher levels of professionalism in the industry?  Will changes encourage new entrants to the industry? Are proposals fair to all parts of the industry? Do any proposals have unintended consequences?
  • Consumers –– Your views on impacts for consumers are very important (consumers can be your clients and also the wider public).  Will proposals build confidence for consumers to seek advice? How will the availability and quality of advice be impacted?

If you have useful examples that you think are relevant and pose difficult practical challenges for you as an adviser, please submit them.

Transitioning for RFAs

The CWG consultation paper suggests that AFAs should be assumed to meet minimum standards for “particular competence, knowledge and skill.”  This means AFAs would be “grandfathered” on the basis they are already working in an FMA regulated environment. 

There is no similar grandfathering proposal for RFAs.  Do you agree with this approach?  Do you have a suggestion to grandfather RFAs?  (Note that simply saying “an RFA has been an adviser for XXX years and therefore should be grandfathered” is not in itself likely to be sufficient – there needs to be some objective way to establish competence).  If RFAs are not to be grandfathered, the Bill allows for transition periods – what would you suggest is appropriate?


High standards of business ethics are critical in financial services.  This has been well illustrated by the disgraceful behaviour uncovered by Australia’s Royal Commission.

A number of points are raised in the CWG consultation paper on achieving and maintaining high standards of ethics for financial advice.  You could think about whether one level of ethics should apply across all advisers, and whether different/additional ethical standards need to be imposed on organisations (i.e. on Financial Advice Providers).  The Bill includes a provision on conflicts of interest – which raises the question of whether the Code should also explicitly address conflicts management.  And finally does each business need a clear framework for dealing with ethical dilemmas?

These questions are just to get you thinking – many more are raised in the consultation paper.

And that is it.  Please submit your thoughts by the 5pm deadline on 30 April – your submissions will help shape of the Code. 

John Berry is co-founder and CEO of Pathfinder Asset Management, a boutique responsible investment fund manager.  He is also a member of the Code Working Group.

Useful links:
The Code Working Group’s consultation paper and submissions template are available here

Tags: Code Working Group

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Comments from our readers

On 28 April 2018 at 5:12 pm Murray Weatherston said:
Australian Royal Commission

This isn't really related to John's Part 3, but it needs to be "got out there."

Counsel assisting (Rowena Orr QC) raised a very apposite and timely question in her closing summary. I hope the Select Committee members, MBIE, CWG and FMA were listening and took note, but in case they weren't, here's a clincher question.

She asked the big 5 (ANZ, CBA NAB Westpac and AMP) via a mafia like invitation to tell the Commission whether "it was possible for financial advisers to manage the conflicts associated with providing advice as a representative of an institution that also makes products."

They've got a couple of weeks to respond and have a restricted page length - I think it is either 20 or 30 pages in total to answer all the questions they have been asked. (No he didn't specify the font specifically but there is probably an overarching minimum font size for the whole Royal Commission.)

One way to remove the conflict (a la Brent) is to ban them from even selling their own products. A less extreme alternative (a la SIFA) is to strip away Sir Anthony Mason's cloak or disguise, and make them call what they do sales, which is what it is. In other words, ban them from "advising" on their own products.
On 28 April 2018 at 5:50 pm Murray Weatherston said:
Calling all RFAs. Wake up!!!!!

Wake up - you've got only 2 days from now (5 o'clock Saturday evening) to get a submission to John's Code Working group to stop them annihilating the small firm adviser.

I know many of you think "we've heard this before - in 2008 we were told we would all need to get qualified - but in the end we didn't and anyone who paid the money and did the courses wasted their time and money. The same will happen this time."

However this time it's completely different. That is a certainty.

In the near future, everybody who wants to give advice in their own practice is going to need something.

At the very least it looks like being NZ Certificate level 5 (1) Core (2) Financial Advice Strand and (3) one or more Specialist Advice Strands.

If CWG sticks to its guns and actually recommends what's in its paper, every life agent, mortgage broker, fire and general agent who does anything more than execution only (the client comes to you and tells you exactly what they want) or pure sales - and I reckon the greatest majority of RFAs do more than that - they will have you needing a university degree and probably level 6 papers on the technical and process of advice aspects to continue in business.

Don't be misled by any gobbledy-gook about the distinction between "product advice" and "financial planning" like John had in one of his opinion pieces.

Financial planning under this definition is not that comprehensive financial planning stuff that the pointy heads from IFA talk about and say they do do - if you're a reasonable adviser and sit down with your client and talk to them about their objectives and goals and recommend a proper insurance/mortgage/general insurance plan, you will be caught as a "financial planner" in the terminology that John and the CWG are talking about.

If you consider yourself an adviser and not a simple product flogger, then you will be a financial planner under CWG's draft Code. So unless you stand up now, it'll be a degree and Level 6 for you, girls and boys.

So if you do nothing else between now and close of business 30 April (i.e. Monday), dash off a quick email to code.secretariat@mbie.govt.nz and tell them you think it would be crazy and a disaster for the future number of advisers if they were to proceed down this track.

Your industry needs You to do This. It's not much to ask you to do. And while your're at it, get all your colleagues to do the same.

Come 5.01pm Monday 30 April 2018, it will be too late.
On 28 April 2018 at 6:52 pm Adviser1 said:
Could submit Murray but the sceptic in me is asking what's the point, they ain't listening. They are trying to solve a problem that isn't there - 98% of life/general and mortgage brokers do a great job, we self regulate and come under plenty of consumer and general laws already. The focus on churn, trips and commissions make great headlines and justify what they are doing.

A few years back we were told if you gave investment advice you become an AFA; insurance/mortgage advice you remained as an RFA. Now it looks like we are being punished for not choosing the AFA path.

If you're an RFA with experience this of course should be taken into consideration, perhaps with a couple of industry and client references.

Degree as a minimum? - no way, ridiculous idea, will destroy the industry. Level 5 - maybe although the course is very 'text book' and doesn't quite cover the 'art' of what we actually do - listening to and working with our clients, building trust, relationships and providing solutions.
So in summary we could submit but it's clear they ain't listening to their 'clients'. What will be will be - we just have to suck it up and believe in what we do for people. Onward and upward and cover your ass with written reports for Africa.
On 29 April 2018 at 5:19 pm gavin austin adviser business compliance said:
Calling all RFAs. Wake up!!!!! Absolutely agree Murray. Totally absurd to require a degree to be able to do what they have been doing for some time in a totally professional way. The less than 1% who have tainted the industry with "churning" is irrelevant. The need even for level 5 is more than is needed - level 4 would suffice for existing adviser and maybe level 5 for new entrants ( reluctant to even say that as we already have a problem getting new young advisers into the industry). The CWG have disappointed me in this respect but there is some hope if we follow Murray's Advice and email our concerns - keep it short and sharp rather than an epiphany.
Adviser1 - there's a saying "that it only takes good men to not stand up" or something like that so we should all at least try to make a difference for the betterment of our industry and the public for to have access to good advice. Didn't I hear somewhere that that was one the key objectives of this review.
On 30 April 2018 at 10:01 am Paul Flood said:
Adviser1 (and others) - it is very easy to sit on the sidelines with your sceptic's hat on and complain that your voice is falling on deaf ears, but the CWG can't listen to what is not being said. If we as advisers don't provide input, then we have no right to complain when things don't turn out as we think they should.

Besides - where is the evidence that the CWG is not listening? Submissions end today, after which time the CWG can consider them fully. There is a process in place, welcoming our input.

If enough advisers make quality submissions to the effect that (for example) a level 7 qualification should not be required for non-investment planning, and they nevertheless conclude that a Level 7 qualification is required, THEN we have grounds for saying our voices have not been heard.

But if we don't speak up, there are no voices to be heard.
On 30 April 2018 at 11:04 am retired blogger said:
Given the outcome of the Royal Commission in Ozzie, one might imagine that the MBIE and the FMA and CWG are all listening

Maybe for the first time, and probably reluctantly

But they will be

So yes submit submit submit

After the RC scandal in Ozzie, some of us are hoping the whole FSLAB thing will be discarded and rewritten

It should be !!

On 30 April 2018 at 12:46 pm Brent Sheather said:
Oh yes Retired Blogger, I bet these guys are listening along with ASIC, not only reluctantly but with fear and trepidation. Looks like the game is up in Australia and the question is, "is the era of regulatory and legal subsidy to the big end of town under threat here too?" If I was the Chief Executive of the FMA I would be preparing a response to the inevitable criticism of his "putting clients interests' first means different things depending on whether you work for a vertically integrated organisation or not" faux pas. Personally, I would probably say I was misinterpreted, I'd had a knock to the head recently or some such.

That comment by Mr Everett was a low point for financial regulation and all financial advisors who present to the government on the vertically integrated issue need to highlight the NZ regulators interpretation of its role. In a nutshell what Mr Everett said was "All clients' interests must be put first but some clients interests will be put further first than others." Great stuff.

Compare and contrast Mr Everett's view with the independent enquiry going on in Australia illustrated by the following previously noted comment by Murray – "Counsel assisting (Rowena Orr QC) raised a very apposite and timely question in her closing summary. I hope the Select Committee members, MBIE, CWG and FMA were listening and took note, but in case they weren't, here's a clincher question. She asked the big 5 (ANZ, CBA NAB Westpac and AMP) via a mafia like invitation to tell the Commission whether "it was possible for financial advisers to manage the conflicts associated with providing advice as a representative of an institution that also makes products.""

Back in the late 70's someone said he would like to come back as the bond market as it scared everybody. I think I'd like to come back as a Royal Commission on Banking.
On 30 April 2018 at 6:20 pm Chris Hardcastle said:

Thank you for making the time and putting the effort into this three part commentary. It has been useful and appreciated.
On 1 May 2018 at 8:17 am MPT Heretic said:
What is interesting is the lack of focus thus far on the Aussie share brokers. Surely another gold mine of vertically integrated client overcharging, misdirection and putting clients interests first if it means into the next IPO

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