Code Committee to get more power
Proposed changes to the Financial Advisers Act will place more power in the hands of the code committee, which administers the code of professional conduct.
Monday, July 18th 2016, 6:00AM 
9 Comments
by Susan Edmunds
At the moment, only authorised financial advisers are covered by the code, which dictates their client care and ethical obligations as well as CPD and qualification requirements.
Code committee chairman David Ireland said a big problem with the current regime was that the code only applied to a small number of advisers who were AFAs. RFAs and QFE advisers do not have to abide by the same rules.
"If you look back six years to when the act came in, the very small number of AFAs was not predicted at the time. Initially 20,000 was the figure talked about and then that narrowed to 5000, then it ended up at less than 2000. It meant the code was not really as effective as it could have been."
He said the proposed changes to the code would fix that, with no escape from it if someone was providing financial advice of any sort.
"The code will end up being a more complicated and extensive document than it currently is," he said.
"It's ironic that with the law reform, where one of the key aims going in was to simplify the regime, a necessary consequence is that it will end up with the one simple piece of the current regime being the most complicated feature of the new regime. but I don't think it's a bad thing."
Ireland said the new code committee would have the flexibility to create something that would remain appropriate and easy to digest.
"That's a challenge for the code committee, to work out how this is going to look. Whether the code committee with a broader ambit will say 'we like the current structure and approach to the code and we are just going to add more parts to cover the array of financial advisers who need to be covered', or start again with a new look and feel for the code. I don't know. That's an important process for the new code committee to undertake. The code committee is going to play an integral part in shaping the new regime and how it is going to work."
One of the first key questions for it to tackle is what qualification requirements will be imposed on advisers.That is not being dictated by the FAA but will be left up to the code.
Ireland said the level five financial advice qualification could work.
"The level five certificate with its specialist strands does lend itself to being a fit-for-purpose base level qualification but whether that's required for all financial advisers, I don't know. For some, level four may be sufficient but others might need CFA level. I hope it does not get too complex because with great flexibility and power comes the risk of smothering the regime with too much granularity," he said.
He said he hoped the code could continue with a principles-based approach.
Ireland said it would be best if the code committee did not become too much bigger because there was a risk it could become unwieldy with a lot of members.
More consultation is still to come on the likely recommendations for the code committee and the Financial Advisers Disciplinary Committee.
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There are 8 streams in the NZ Certificate in Financial Services (Level 5}, and arguably there will need to be a representative (or more) from each of those streams; plus the ubiquitous lawyer, a couple of academics, and a couple of consumer representatives (as well as a South islander, a farmer, a recent immigrant and a blacksmith). Sometime over the next year, there will have to be a big revamp in the Code Committee membership for all advisers to think that their stream has had a good share of the saveloy.
Given the very large number of Financial Advisers and Agents who give insurance advice, as opposed to investment advice, I would expect at least one insurance expert (Life, Health & Disability) to be on the committee now that they will all be subject to a Code of Conduct.
Representation on the Code committee by someone who knows all the issues around life insurance advice is essential. Recognising bad advice is not possible without an in-depth knowledge of life insurance principles, products, policy restrictions and benefits, risk management, premium structures, underwriting/exclusions, medical conditions, ownership issues , I could go on and on.
"He said the proposed changes to the code would fix that, with no escape from it if someone was providing financial advice of any sort."
Yeah right!
What about lawyers and accountants providing financial advice - that's right they're exempt.
And what about people promising residential property investment as the way to fund your retirement - that's right, they're excluded. But haven't I been reading a lot about the impact of investors on house prices - are none of them advised?
While I am here, I also noted that the tone and structure of David's comments seemed to be the sort of musings one might expect from an outside observer rather than a recently reappointed Chair of the Code Committee. I hope he is not as "lame-duck" as Obama is right now.
The battle for this code and the bodies who oversee it has been a very long battle, and seems like it is still struggling to get any effective traction.
I have to agree with someone who once pointed out that the bodies who oversee people in the finance profession are basically a body who collects annual subs from those practitioners, so that they can fine them, to build up even bigger coffers?
Now, this is all supposed to be in the name of 'regulation.'
Fact...The last couple of GFC's were originated in the largest and most regulated economy in the world, and they already had one of the highest form of 'regulation' in place, as we also had in NZ, and it was in the form of a 'prospectus.'
Did the relevant 'prospectus' help save investors in the likes of Blue Chip, or Bridgecorp? No.
Plus, those who were supposed to keep a professional eye on the directors and books of such companies were the actual culprits, yet not one of them were taken to task, yet ironically, they had the word TRUST in their designation!
The TRUSTees.
This whole debacle appears to be wandering continuously off track, as if it is run by incompetent people who someone said have no financial background at all?
There were numerous warnings raised about David Ross, yet those warnings were obviously ignored, yet a ponzi scheme as Ross was operating would seem to be one of the easiest to identify.....and well before it grew so big?
The overseeing of investment and financial planners, and life insurance agents and other associated colleagues cannot be that difficult, and would appear to be so, only if the motive for the overseeing body/s is for the correct reason.
It is surely not acceptable for such a body to be 'hoodwinked' as AFA put it, by the likes of David Ross, and don't forget to add that ex-pat NZ'er who returned from Australia in recent years and secured a top job with the FMA based upon his self-created degrees and references from a Melbourne University I seem to recall.
He worked within the overseeing organisation for quite some time, until his ruse was apparently spotted by someone, and he disappeared with hardly more than a proverbial 'slap with a wet bus ticket' I was told?
One day soon, I would love to see this important matter resolved, as I assume all in the various divisions of the profession would, because the majority have always been good people with good intentions, and only a very very small percentage actually have the wrong intentions, yet the majority , again, suffer.
Michael (ex Money Manager)
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The 10-Commandments form a good start;
"Thou shalt not Steal ... " etc.