Two tiered AFA disclosure
Advisers who become authorised from now on will have to comply with disclosure rules around advice given as set out in the Code, but further disclosure rules telling a client about the adviser personally do not come in till July 1.
Thursday, December 2nd 2010, 9:31PM
by Jenha White
Securities Commission director supervision Angus Dale-Jones says the disclosure rules which do not come in till July make it easier for clients and potential clients to compare one adviser to another and are primarily disclosures about the adviser rather than the advice.
He says these rules take effect from July because easy comparability between advisers becomes really helpful once all advisers for personalised investment advice are authorised financial advisers (AFAs).
"It also gives advisers and adviser businesses time to get the layout and structure of their standard documents in a form that complies with the Regulations," he says.
Advisers that become AFAs have to follow the Code of Professional Conduct Code Standard 7, which means they have to tell clients certain things about themselves, but not in the form prescribed by the Disclosure Regulations.
"So much of the information has to be there from the moment the adviser is authorised, but the Disclosure Regulation form and layout for doing so only takes effect from 30 June," says Dale-Jones.
Institute of Financial Advisers (IFA) chief executive Peter Lee says the Institute is currently drafting a template of the disclosure statement for members which will be a combination of the existing IFA disclosure template and the new rules to come in from July. It is expected to be ready by the end of the year.
Dale-Jones says the IFA's initiative in creating a template is exactly the sort of thing the Securities Commission is encouraging organisations to do, going beyond the minimum standards regulation requires.
Code Standards about disclosure which AFAs will have to follow from now on are:
Code Standard 7 which says: An AFA must ensure each retail client has sufficient information to enable the client to make an informed decision about whether to use the AFA's financial adviser services and/or follow any financial advice provided by the AFA.
The information an AFA may be required to provide a retail client under this Code Standard includes (but is not limited to) information about any limits on the scope of the AFA's financial adviser services, the AFA's qualifications to provide those services, the fees the client must pay, the benefits the AFA or any related person of the AFA will or may receive, and any conflicts of interest the AFA may have, in relation to the AFA's financial adviser services provided to the client.
The Code Standard also refers to the July disclosure obligations also saying:
In many circumstances an AFA will satisfy the requirements of this Code Standard by complying with the AFA's disclosure obligations under the Act.
Code Standard 9 also refers to disclosure saying: the AFA must provide a written explanation to the client of the basis on which those services are provided. The AFA must also take reasonable steps to ensure the client is aware of the principal benefits and risks involved in following any financial advice provided as part of that service having regard to the characteristics of the personalised service.
Jenha is a TPL staff reporter. jenha@tarawera.co.nz
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