Code revision shouldn't slow process: Butler
The three areas of the draft Code that the Commissioner for Financial Advisers says need to be revised are minor technical points which will not take long to change says the Code Committee.
Wednesday, August 18th 2010, 5:54AM
by Jenha White
The Commissioner for Financial Advisers David Mayhew yesterday issued a letter saying he is not satisfied that the draft Code is consistent with the Financial Advisers Act and he has directed the Code Committee to revise three areas - the background to the Code, Code Standard 5 and Code Standard 8.
Code Committee chairman Ross Butler says he wants to make it clear the draft Code has not been rejected, that revisions need to be made which the Committee is more than capable of making quickly within the original timetable.
He says the fact the Commissioner has outlined that no further consultation or submissions are required shows the matters raised are not substantive.
Code Committee member and Kensington Swan partner David Ireland says the Committee already had a meeting planned for Thursday where it will revise the draft Code and return it to the Commissioner within days.
He says the change that needs to be made to the background to the Code is adding the pre-condition that an adviser needs to be providing a personalised service for retail clients, as this triggers whether you need to be authorised.
He says the changes required for Code Standards 5 and 8 are clarifications.
Code Standard 5 says: An AFA must not provide financial advice to a retail client in relation to a financial product that is not offered to the public if the AFA is a related person of the product provider of that financial product.
Ireland says he thinks the Commissioner is seeking an additional provision to be included that clarifies the very limited scope of this standards application and also clarification that it is not intended to encourage authorised financial advisers (AFAs) to advise retail clients to invest in products that are not able to be lawfully offered.
He says on the face of it, the Code Standard is consistent with the Act, but there is a perception risk that AFA's might take it that it enables them to do something inconsistent with the Act and that needs to be fixed.
Code Standard 8 says: When providing a personalised service to a retail client as AFA must take reasonable steps to ensure the personalised advice is suitable for the client.
The additional provision Mayhew is concerned about provides relief from this standard where a client instructs an adviser not to determine the suitability of the personalised service provided.
Ireland says the issue is an opt-out can be extensive enough that a personalised service becomes a class service. He says in that case Code Standard 8 does not apply however this needs to be clarified.
"This might include some wording changes to the opt-out provision to recognise that opting-out might result in the service no longer being a personalised service."
He says this was something that had not occurred to the Code Committee and no submissions were raised on the point.
He says it is great to have the Commissioner look at the Code from a fresh perspective and come up with angles the Code Committee had not thought of.
Institute of Financial Advisers (IFA) chairman Nigel Tate agrees saying it is fine tuning around the edges of definitions and it is about clarifying the regulators interpretation of various positions.
The Code Committee is also pleased to see that the Commissioner has confirmed that he is happy with the extent of consultation it undertook as this was another provision for him to approve the draft Code.
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
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