13 Comments 13 Commentsby Russell Hutchinson
The new version of the Code of Professional Conduct for Financial Advice Services has been signed off and will take effect from November 1. At first glance, not much has changed.
The nine standards remain, and most advisers will find the framework recognisable. But a closer look shows a significant clarification and one significant shift.
Four of the nine standards have been altered. That’s nearly half the Code, although most of the changes are technical. Standards 6, 7, and 8 (general competence, investment planning, and product advice) have all been updated to recognise version 3 of the New Zealand Certificate in Financial Services (Level 5), alongside version 2.
Standard 7 also loses its “interim” label. The suggestion that investment planning competence might need to be raised further has been dropped. The effect is to settle the current level of qualification as the accepted benchmark.
Commentaries on six standards have been revised. Code Standard 3, which is the requirement to give financial advice that is suitable, now has the longest commentary of any standards. That’s because suitability is, I think, the heart of financial advice.
Now we see specific guidance that states:
“In some advice situations, ensuring that the financial advice is suitable for the client may require the person to have competence, knowledge, and skill in addition to the minimum standards specified in Part 2 of the Code. The additional competence, knowledge, and skill required depends on the circumstances. For example, it may be knowledge in a specialised discipline such as in relation to a specific asset, legacy product, or foreign regulatory regime, or skills reasonably necessary to understand the client’s circumstances.”
This is significant because it highlights requirements above the minimum standard, specifically identifies legacy product knowledge – an area of advice the Financial Markets Authority has been interested in recently – and even nods towards the need for soft skills.
To cap it off, it links to Code Standard 9, where we see the largest change in the whole Code.
Standard 9, covering continuing professional development.
This has been substantially reframed. Where the old Code talked about keeping “up to date,” the new Code stresses continual development.
The commentary expands on this with examples ranging from formal mentoring and structured courses to seminars, industry activity, and even self-directed learning. Entities are expected to review systems and expertise each year, not just maintain the status quo.
Word for word, only about 11% of the commentary text has changed. But impact is not measured in word counts. The CPD rewrite shifts the emphasis from compliance to growth, from box-ticking to ongoing learning.
Advisers and providers will need to think about how their training programmes reflect this broader view.
I have seen some advisers talk about education providers as not being necessary: the line is that you can gain all the CPD you ‘need’ by merely going to product provider training.
If your advice is all focused on which product to have, then provider training might be fine. On the other hand, if you consider wider financial strategies, like how much to self-insure, or trade-offs between different cover types, you rarely find insurers talking about these in their training.
Go even broader to trade-offs between different financial goals (protection versus debt repayment versus achieving a life goal) and I think lots of value can be had by working with other financial advisers who have experience working through these issues with clients.
Our assessment
The overall impact is moderate. Most obligations are unchanged, but the new framing of CPD is significant. Firms should review how they document and support learning, making sure development is continuous rather than static.
Disclosure: I own half of a training business, and I am a member of two professional associations which provide training too.
| Standard or section | Changed | Changed Nature of Change | Commentary Change |
| INTRODUCTION | Yes | Minor (references the requirement for minimum standard) | N/a |
| 1. Treat clients fairly | No | None | No |
| 2. Act with integrity | No | None | No |
| 3. Give suitable advice | No | Major (gives examples of what types of knowledge may be required) | Yes- significant updat |
| 4. Ensure client understands advice | No | None | No |
| 5. Protect client information | No | Minor (updated legislation referenced) | Yes |
| 6. General competence, knowledge, and skill | Yes | Minor (qualifications updated) | Minor wording |
| 7. Investment plan competence | Yes | Moderate (qualifications updated, interim note deleted) | Minor wording |
| 8. Product advice competence | Yes | Minor (qualifications updated) | Minor wording |
| 9. Continuing professional development | Yes | Major (substantive rewrite, reframed obligations) | Significant rewrite |
| « Do longer SOAs break the law? | Growth in FAPs and FAs sustained over the last 18 months » |
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Insurance staff are usually fine for training advisers on their product, but they are not typically advisers.
Advice issues/risk management/ financial calculations and assessment/advice strategies/competing product offering/value of options, business insurance and interpreting business risk/ annual accounts etc. are often not their area of expertise.
Neither are, basics of: Estates and Estate administration; insurance and other laws; contract law principles; business structures; ownership types; blended families and relationship property issues; Trusts, trust administration and trust policy ownership; Life insurance income tax and GST issues; Government benefits; ACC and its products; and any number of other issues that advisers need sufficient understanding of to give suitable advice.