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Our new code

We've had plenty of commentary on the code, suffice to say the general feeling has been it is simpler more straightforward.

Monday, June 24th 2019, 10:12AM

Jon-Paul Hale

Moreover, for the prudent financial adviser doing the right thing, putting their clients first and documenting what they do, they're probably ok.

Where this is going to be misunderstood is the old story of dumbing things down. Make it simpler so people can understand it. Yes, I get that; however, there is a point where that simplicity crosses a line, and it becomes a liability. Also, in this instance, the adviser is the one going to be in the hot seat.

From my perspective, it's good to see a simple straight forward code, and frankly, I'll be getting on with things much how I have been. However, in the published code vs. the prior draft, people have missed what's actually happened.

Our friend, the AFA who got hauled over the coals for insurance conduct, has highlighted what was wrong for the regulator in the draft code, and the AFA code, and what is going to be a challenge for advisers under the new code.

Both approaches of the past codes had a critical flaw for the regulator; each code standard was too narrow in its application to put together a successful case based on the typical information found in adviser files.

Which meant in the case of our AFA, several code violations were thrown out or not pursued because they didn't have a chance of making them stick. They didn't have the information, and the standard was too narrow in its application.

Moreover, while the industry has applauded the simplified code, everyone has missed in simplifying it, each code standard now applies in a much broader way.

Take Code Standard 1, Treat Clients Fairly. It's an excellent standard; it's aspirational, it says all of the right things about what we should be doing. However, as Murray Weatherston has been quite vocal about all the way through, it is subject to an extremely broad interpretation.

I was generally happy with the last draft; it had some reasonable limits and guidance around each standard. With the new code, the scope of each standard is considerably broader, so broad that opinion, and not evidence, has the potential to hang the adviser out to dry.

With Code Standard 1 it is open to a broad interpretation and added to that it has scope for personalities to be injected into the process as there is a lot that can be considered a matter of opinion and perspective, rather than fact.

The FADC will be reviewing the code violations, so the process isn't quite at the level of court action but follows the general principals, which is where the opinions come into the picture. Though if there is a FADC issue if there's a code discussion there's going to be a FSLAA issue too.

Which leads me back to my previous comments, where the FMA has spent much of its time taking cases to court.

In the early stages of the new regulations, now Q2 2020 to Q2 2022, I expect the FMA will be taking more of a guidance approach, with a more significantly court focused approach after that with non-compliant advisers.

Should this be a scary thing?

No, if you are doing the right thing.

At the same time, we have heard from the FMA that they have found conduct that is not up to their expected standard, i.e. against the new rules but no rules presently to pursue issues. Rob Everett has come out swinging about regulating the life insurers. Moreover, you can bet your bottom dollar the that also means us!

Which is to say we don't have particularly clear guidelines on what 'good advice' looks like. We know what it's not, but defining what good advice is, has been difficult. There's just so much scope across what we collectively do that one answer doesn't apply to all.

I suggested an approach previously, good advice is advice that works when it needs to, for insurance, at claim time. At the same time when it comes to insurance, that also includes that advice needing to move and change with the changes with the clients' circumstances, medical technology, and product changes and updates along the way, so it's not a simple judge the advice at application time approach.

Which is to say if the client does not engage in reviews when they need to, it's probably not going to work entirely as intended, and the adviser has the potential to be blamed.

So this is where it makes your decision as an adviser difficult. As an adviser, you are going to have to make a decision, go the whole hog and license as a FAP, or suck it up and operate as a FA under someone else's FAP.

The problem if you got the FA way; you're going to have to prove you're a reasonable risk for the FAP to take you on. It's not going to be quite so easy as I produce $X because how you produce $X is going to be more important than just the money involved.

The second issue, as has been highlighted by many advisers who are more lifestyle than knocking every door down, where do I sit?

The challenge for this group is that they have lots of clients, significant renewals, and don't do much new business. So for the FAP, they aren't so attractive for two reasons.

  • Lack of production to help pay the bills for the additional costs that having a FA brings
  • Increased advice risk, because the adviser does less, they potentially aren't as on the pulse as they need to be.

We have the new code, we have the application of the new regime timeline slipping a bit, but it is coming.

I've seen many advisers engaging in the various sessions and taking advantage of provider lead training — this great to see.

The landscape isn't as simple as many would like advisers to see presently. So the misdirection of the simple code hides significant structural changes that are outlined in FSLAA, now that it has passed.

What you don't see in the code, isn't there for a reason, it is in the FSLAA. The FSLAA is not a guide or fluffy words, it is the law, and it is much much harder to change and update than the code. So it is much more rigid when you run up against it. 

Advisers need to look more extensively than just the stuff poked at them by providers. They need to ask some more in-depth questions, and look behind the motivations, to then make the best decisions for them.

We have both interesting times ahead, as well as significant opportunities if we get it right.

Tags: Jon-Paul Hale

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BNZ - Classic - 3.85 3.85 4.05
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Finance Direct - - - -
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Napier Building Society - - - -
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Resimac 5.30 4.86 4.14 4.19
RESIMAC Special - - - -
SBS Bank 5.79 4.85 5.05 5.49
Lender Flt 1yr 2yr 3yr
SBS Bank Special - 3.85 3.85 3.99
Sovereign 5.80 4.29 4.35 4.55
Sovereign Special - 3.89 3.85 4.05
The Co-operative Bank - Owner Occ 5.65 3.89 3.89 4.05
The Co-operative Bank - Standard 5.65 4.39 4.39 4.55
TSB Bank 5.69 4.45 4.35 4.55
TSB Special - 3.95 3.85 4.05
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Westpac 5.79 4.69 4.79 5.19
Westpac - Offset 5.79 - - -
Westpac Special - 3.85 3.85 4.05
Median 5.80 4.35 4.35 4.19

Last updated: 19 July 2019 10:59am

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