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Code: From complex to simple

The working group developing a new code of conduct for financial advisers has taken heed of submissions made to it  - but its new simplified draft still leaves some holes to be filled.

Friday, October 12th 2018, 6:00AM 9 Comments

That’s the verdict after the group released its first full consultation draft.

The new code, which will apply to all financial advises under the new regime, has 12 standards:

  • Treat clients fairly and act in their interests
  • Act with integrity
  • Manage conflicts of interest
  • Take reasonable steps to ensure the client understands the financial advice
  • Give financial advice that is suitable for the client
  • Protect client information
  • Resolve complaints
  • Not bring the financial advice industry into dispute
  • Have general competence knowledge and skill
  • Keep competence, knowledge and skill up-to-date
  • Have particular competence, knowledge and skill for designing an investment plan
  • Have particular competence, knowledge, and skill for other types of financial advice

The code introduces a minimum level five certificate qualification requirement for all advisers, and requires them to have completed the relevant certificate strands for the type of advice they offer, such as insurance, investment or mortgage advice. If they provide more than one type, they will need to have completed more than one specialist strand.

Financial Advice New Zealand chief executive Katrina Shanks welcomed the code. “For us it’s fantastic that the code has at last been released. It gives some certainty in the marketplace of what the draft code looks like.”

It was not a surprise that the code required a level five certificate as the minimum, she said.

“If you want to build consumer confidence and trust in seeking financial advice, to say you have a form of qualification is a good thing.”

But she said it was appropriate that the requirement for a degree had been put aside for now.

“A degree is a big reach from level five. That’s a very big expectation on a workforce where the average age is 57. But we’re certainly seeking a lot of new entrants who have tertiary education.”

She said it was disappointing that the consultation period was so short. Submissions are requested by November 9. “It’s a big ask to get the kind of quality consultation they’re looking for in that period.”

She said some of the examples used in the consultation draft were surprising – such as that in the “understands the advice” section. There, it cites the example of a financial adviser recommending a client replace a life insurance policy with a new policy with similar benefits.

“Why would you replace it in that case?” Shanks said. “It’s probably not the signal they were wanting to send.”

SiFA spokesman Murray Weatherston said he was “gobsmacked” to see where the working group had got to, compared to their earlier documents, which he said was “at the other end of the spectrum”.

He said more clarity was needed on what would could as CPD under the rules – there is no specification in the draft of a set number of hours required.

Weatherston said there also needed to be more onus put on financial advice providers to prove that their nominated representatives were compliant.

The draft says nominated representatives are deemed to have met the competence requirements if they complete the learning outcomes specified for their role by their FAP and the FAP has the procedures, systems and expertise to give the representative capabilities equivalent to those of an individual with level five.

“It  should say the nominated representative has to complete the learning outcomes specified by their FAP in order to e compliant with the requirements of the FAP.”

He said the question of alternate qualifications had also been left undecided whereas the current code of conduct is very specific.

“Clearly they listened to the response to their first effort but by simplifying it down they are leaving holes still to sort out.”

Compliance expert Barry Read said it was easy to read and understand. “I’m sure there will be bits and detail that needs fleshing out but there’s nothing major in there that sets off alarm bells.”

Advisers should not have trouble finishing level five, he said. “Most good advisers already operate at the level. It’s certificate level, we’re not talking degrees or masters.”

As currently written, the code would allow someone who had done a level five qualification with the core strand and specialist strands for their advice practice – but not the financial advice strand – to be considered qualified.  But that qualification is under review and it is understood that the financial advice strand will disappear and instead become part of core and specialist strands.

Tags: Barry Read Code Working Group Dale-Jones Katrina Shanks Murray Weatherston

« Draft code of conduct revealedMarket fall not a bloodbath; Someone’s dropped their latte: NZ Super Fund boss »

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Comments from our readers

On 12 October 2018 at 8:26 am Murray Weatherston said:
Nominated representatives (nomreps)

My point is a little different to as presented in the article.

I think the Draft Code gives unwarranted status to nom reps.

CWG text as i read it says that IF
(1) a nomrep has completed the learning outcomes specified for their role by their licensed provider; and
(2) the FAP has systems procedures and expertise (shades of "in aggregate")
THEN the nomrep will be deemed by the Code to be of an equivalent standard to an individual ( adviser) who has level 5.

That just doesn't seem to be right.

A nomrep will be tightly controlled by her employer. So I would suggest the standard for a nomrep should be

(3) a nomrep has completed the learning outcomes specified for their role by their licensed provider (same as (1); AND
(4) The FAP has to ensure the nomrep is compliant with the systems controls and procedures.

The FAP is totally responsible for the nomrep.

But the nom rep isn't given a public status equivalent to a financial adviser.

What is wrong with that - except that the VIOs wouldn't be happy as it strips away some of the cloak.
On 12 October 2018 at 8:47 am Murray Weatherston said:
General competence

Pleased to see CWG has dropped the product advice/financial planning distinction for general/specific competence.

We at SIFA are pleased that they have adopted our suggestion that general competence should be Level 5 Core and Financial advice strands; and specific competence should be a technical strand.

But their proposed implementation seems wonky.

Std 12 says "the general qualification outcomes are the core qualification outcomes (graduate outcomes 1-4) and the qualifications under the financial advice strand. Applause.

But how can you meet this? A few lines down draft Code says one of the ways a human may demonstrate their general CKS is by having the NZ Certificate in Financial Services Level 5.

But most people who have Level 5 do not have the financial advice strand. Under NZQA 2315, to get a NZ Cert Level 5, you have to pass Core and one of a number of technical strands. One of the strands is the Financial Advice Strand, but most of the Certificate holders don't have it - they have one of the investment or life insurance or mortgage broking strands.

That leads to the general question - how does a qualification that doesn't include the financial advice strand meet the requirement of the standard?
On 12 October 2018 at 9:09 am Simon H said:
I agree with Katrina that the product replacement example is a poor choice - and is likely to conflict with draft Code Standards 1, and quite likely 3. The problem with insurance product replacement is that you are unlikely to have any idea of where a problem may lurk.

I also agree with Murray: perhaps the Code should make it clearer that a NR is just that. Although I suspect the spin merchants at VIOs will find ways to make this distinction hard to see.

But overall - a great result: brief and clear, and dealing only with minimum standards - leaving room for FAPs and adviser bodies to stake out higher ground if this works for them.
On 12 October 2018 at 9:10 am dcwhyte said:
1. Agree with the point re nomreps
2. Good that SIFA were among the mainstream opinion recommending Level 5
3. The Code goes on to make special reference to investment advice - just as FAA 2008 made special reference to investment products - so the distinction is perpetuated.
On 12 October 2018 at 10:22 am Lara Jane Maloney said:
Since Level 5 is going to become the minimum qualification, what would be the next recommended qualification for those wanting to continue to upskill and set themselves apart?
On 15 October 2018 at 9:56 am Murray Weatherston said:
In your sarcastic comment #2 above, you have missed the subtlety of our patting ourselves on the back about the new general/specific competence divide.

Yes almost everybody was in favour of Level 5, so that was mainstream.

But what was different was we were one of the few [perhaps the only] submitters, to suggest that rather than using the product advice/financial planning spectrum as the measure, the Core and Financial Advice Strands should be used for general competence and a Technical Strand or Strands for specific competence.

It is that that we were claiming specific credit for.
On 15 October 2018 at 12:24 pm Barry Read said:
Lara - Available qualification is the Graduate Diploma in Business Studies (Personal Financial Planning) and I think the do a (Risk Planning) for Insurance? both from Massey.

There is also industry designations of Certified Financial Planner via Financial Advice New Zealand, Which requires the Diploma.

If you are Investment Focused there is also the CFA - Chartered Financial Analyst via the CFA Institute.

On 16 October 2018 at 6:38 am dcwhyte said:
@Murray - Far from being sarcastic, my comment was congratulatory.

I understood that the specialist areas would require specialist qualification and that, as we were moving to an advice-centric regime, financial advice would naturally be a 'core' element.

Consensus hasn't always been a feature of the Financial Advisory industry and it's worth acknowledging when it occurs.
On 16 October 2018 at 7:12 pm RWAW said:
Once again like a broken record I repeat, where is the evidence that education = honesty?

Katrina's comments would be loved by the Insurance Companies, just keep paying regardless.

Why would a good Adviser not recommend a change if there are significant savings to be had with another provider? One Insurance Company CEO has even been quoted as saying if we lose it it's churn and if we get it is just a replacement! What is happening here is that the 5% of dirtbags in our industry are ruining it for the other 95% of dedicated and honourable Advisers. They want a
commission based role with a quick buck, go and sell Kirby vacuum cleaners.

Regards to all as I enjoy the comments.
Rohan Welsh

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