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Draft code of conduct revealed

Financial advisers will usually need a level five certificate - but not a degree - to meet the requirements of the new adviser code of conduct, released in its draft form for consultation today.

Thursday, October 11th 2018, 11:01AM 8 Comments

The code is under development, with a view to being approved by Commerce Minister Kris Faafoi either just before Christmas or early in the new year.

Much of the draft code is similar to that which already applied to AFAs, such as acting with integrity and ensuring the suitability of advice.

A key point of contention through its development has been its general competence, knowledge and skill requirements. These will now apply to all financial advisers, not just AFAs.

RFAs currently have no qualification requirement.

The code said the New Zealand Certificate in Financial Services (Level 5) or the National Certificate in Financial Services (Financial Advice) (Level 5) provided the minimum standards expected.

Individuals can demonstrate they are at that level by being AFAs before the code commences, or having the qualification. They will be required to have completed the relevant strand of the certificate for their type of financial advice. It has previously been suggested that financial planning might require a degree but the draft code does not include that requirement.

Instead, the group notes it intends to consult in the future on whether higher qualifications should be required to demonstrate particular competence, knowledge, and skill for designing an investment plan for new entrants to the sector after a future date.

Entities will be able to meet the standard by giving advice only through individuals who can show they do, or having procedures, systems and expertise that together mean the entity has the equivalent capability.

Nominated representatives will need to complete the learning outcomes specified for their role by their financial provider to mean that together with the procedures, systems and expertise of the financial advice provider, the nominated representative has the capabilities equivalent to those of an individual who alone has achieved the general qualification outcomes.

The working group developing the code noted it would review the latest version of the level five qualification when the draft code was submitted to the minister for approval, and if satisfied with it, specify that version in the code.

"A person seeking to demonstrate that an alternative qualification satisfies the standard, should be able to demonstrate equivalence in an objective, measurable and independently verifiable manner.

"Overseas qualifications should be accompanied by demonstration of an up-to-date understanding of the regulatory framework for financial advice in New Zealand. Older relevant qualifications may be used to demonstrate achievement of qualification outcomes provided the person can demonstrate how they have maintained competence, knowledge, and skill since attaining the qualification, including having an up-to-date understanding of the regulatory framework for financial advice in New Zealand."

Working group chair Angus Dale-Jones said it had received a lot of feedback on the need to set robust and achievable competence standards.

“We have also taken a principles-based approach to ensure the code is flexible and works for all the different types of businesses that provide financial advice, including small firms," he said.

“We’re now seeking feedback on the draft code, and want to hear from people about what they think of the proposed standards and how they will work in practice."

The code is technology-neutral and will apply to roboadvice, as well as financial advice given by people. It sets out 12 proposed standards and supporting commentary. It includes requirements to treat clients fairly and act in their interests, act with integrity, manage conflicts of interest, take steps to ensure the client understands the advice, give advice that is suitable for the client and meet standards of competence, knowledge and skill.

The code will sit within a wider regulatory regime that will include statutory duties, disclosure requirements and licensing. These changes are being introduced through the Financial Services Legislation Amendment Bill.

Further information, including the draft code and link to the online survey is available at

Tags: Code Working Group Dale-Jones

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Comments from our readers

On 11 October 2018 at 11:28 am Barry Read said:
First thoughts;

1. Plain English easy to read and understand.
2. Level 5 is the minimum competency requirement.
3. Nothing really contentious in my view and nothing for good advisers and advice businesses to be worried about.
On 11 October 2018 at 12:10 pm gavin austin adviser business compliance said:
Agree wholeheartedly Barry.

Hopefully we can get on with the whole process so that Advisers will know what's what.

Great to have less number of code standards to work with.
On 11 October 2018 at 3:06 pm RiskAdviser said:
Agree Barry, what will determine the real change isn't how the advisers need to behave and be qualified but how they have to operate, and this is where the FMA and their licensing requirements are going to have the direct impact.

Being an adviser under the code is to be qualified and do the right thing, in principle that's what it's there for.

The more prescriptive piece comes with the legislation and the licencing piece we are yet to see fully.

The big elephant in the room that is still yet to be addressed is replacement business for life insurance, a core issue for the government and FMA. This hasn't been explicitly covered in FSLAB or the code. Though good conduct implies that replacement business is done professionally.

While the principles are well laid out, the measurement of them is more the unknown at this stage.
On 11 October 2018 at 8:10 pm dcwhyte said:
Good - like it.

1. But I'd also like some clarity around the replacement business issue. The example cited of replacing a product with similar benefits begs the question - why is the policy being replaced? I also think there needs to be more stakeholder acknowledgement, acceptance, and documentation around replacement.

2. Need some more discussion around this "in aggregate" idea. Can you have one NZQ 5 Nom Rep and a systemized process that means all Noom Reps under the license are "in aggregate" compliant?

3. Finally, why has investment planning has been carved out for special mention? Getting the Risk Plan wrong can create far more catastrophic consequences for consumers than losing a few beeps of yield in an investment plan.

Big tick for brevity - less is definitely more!
On 11 October 2018 at 9:09 pm Murray Weatherston said:
No 3 is easy. Investment planning service hasn't been carved out. It was always in FAA2008 and has simply been carried over into FSLAB
CWG submitted investment planning should be extended to all "financial planning" but MBIE I mean Select Committee wouldn't play ball
On 12 October 2018 at 12:15 am JPHale said:
David, agree replacement needs some attention, however it’s not so much the like for like replacement as replacing a trauma policy from 1999 has a significant difference in response to a trauma cover from today.

More the issue is the quality of the execution of that replacement. Was disclosure managed sufficiently well enough. Were the underwriting terms reasonable, did the client understand the terms and any loss of benefits involved, and If there were terms, are they creating loss of benefits that there is a reasonable expectation for a claim.

These are more the issue than the like for like concerns expressed by most.

Keeping in mind we have seen plenty of complaints along the lines of I didn’t get a claim paid but I would have if my adviser put me with x instead as well.
On 12 October 2018 at 8:13 am dcwhyte said:
Got that Murray, thanks. But none of the submissions to FSLAB, nor indeed the view from MBIE, support the FAA 2008 delineation of advisers by products offered, so why are we perpetuating the distinction based on advice offered?

I appreciate that CWG will follow the legislative framework but the special reference to investment planning doesn't do anything to promote consumer understanding of the Code or the services being provided.
On 1 November 2018 at 10:32 am pjwa said:
Ash durb nazgatulûk, ash durb gimbatul, ash durb thrakatulûk agh burzum-ishi krimpatul

Translation: One rule to ring them all, one rule to find them; one rule to bring them all and in the darkness bind them

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