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:
I’d encourage you to think about issues from the three angles below (which are not listed in order of importance):
If you have useful examples that you think are relevant and pose difficult practical challenges for you as an adviser, please submit them.
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
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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.