SiFA slams draft code
Financial adviser association SiFA says the working group developing a new code of conduct has abrogated its duty under the Financial Services Legislation Amendment Bill - and that's just one of its problems.
Monday, November 12th 2018, 6:00AM 
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SiFA was one of the submitters who offered views during the consultation process. Submissions closed on Friday.
The organisation said it was just as critical of the draft code as it had been of the earlier consultation paper.
“The overwhelming tenor of our submission is that the draft code is both lacking in content and platitudinous,” SiFA said.
It said the code working group had abrogated its duty by leaving many details to other entities to decide, including the number of hours of CPD required, how processes should be assessed, and assessment of competence.
SiFA said it was a major flaw that the working group had not included any detail about what or how much CPD was needed to meet the code standard.
"We believe there should be a minimum number of hours specified, at least as a 'safe harbour' for the adviser. We know of no other professional code that does not have a minimum activity amount specified. And we bet that the professional bodies who are applauding the non-specification of hours will include a CPD quantity criterion in their own rules. We think the omission of a quantity is just a sop to the professional bodies (of which SiFA is one) to five them another potential member benefit."
SiFA was also critical of the phrase in standard two, calling for advisers to "do the right thing".
“While it is sometimes very clear what the ‘wrong thing’ is, it is not always clear what the ‘right thing’ is. The concept has different meanings in different philosophical frameworks, and therefore the concept is meaningless absent a definition of the philosophical framework that is deemed to be the right one.”
Some standards should be carried through from the current AFA code, the association said, including rules around record-keeping, the prohibition on borrowing from or lending to a client, and the "hard-fought-for approval in AFA code standard eight that it is okay for the person providing advice and the client to agree upon a scope that is less than a full plan covering all the issues that anyone anywhere might have thought arise under the particular circumstances."
SIFA said the requirement to avoid conflicts of interest where practicable should be removed.
“We believe it could be interpreted to impose an absolute obligation to avoid conflicts. This is not set out in the statute as an obligation. The statutory duty is to give priority to the client’s interests. This is explicit recognition that COIs may occur. Rather, we think the standard should cover situations where a conflict is actually present.”
SiFA also argued more clarification was needed on advisers' competence requirements.
At present it is possible to achieve the level five certificate by completing the core strand and an individual strand of either financial advice, investment, life and health, general insurance and residential property.
The code working group has said the standard for competence should be the qualification outcomes of the level five core and financial advice strands.
“There are fewer than 2000 AFAs. Information we have received from NZQA tells us that fewer than 300 NZ Certificates (level five) have been awarded, and only 12% of them included the financial advice strand. So you are deeming people who don’t have financial advice strand as being competent because they hold a NZ Certificate that doesn’t include financial advice strand.”
The code working group has indicated this could change in the review of the qualification but SiFA said that could create its own issues.
“We are concerned about the impact of this change on any persons who have attained and been awarded NZ Certificate level five using an earlier version. This is the same issue that has arisen with the AFA code, when pre 2011 diplomas were no longer recognised as an alternative qualification.”
The code working group has outlined that it will be possible for people to show they hav met he standard without having the qualification. But SiFA said that too was complicated.
“We have no idea as to (a) who would be able to assess that equivalency? (b) who has appointed the people in (a) to give them the authority so that we can rely on their assessment?; and (c) does this industry if it exists have the capacity to assess say 5000 financial advisers (i.e. those not previously AFA, or who have not attained NZ Certificate level five)?”
It is expected that the code will be given to Commerce Minister Kris Faafoi for sign-off late this year or early next, and the regime will take effect nine months later.
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1. The high percentage of industry participants who are largely unaware of the outputs from the CWG, or the impact that these new rules may have upon them and their businesses one day
2. It’s easy to level criticism at the big financial institutions for any perceived bias in the CWG outputs… albeit that I suspect they are taking an active involvement in understanding, challenging and directing the language for their benefit…. whilst much of the industry believe (perhaps incorrectly) that this is a foregone conclusion.
3. For the sake of repetition: the inclusion of coal-face advisers on the CWG would have highlighted some of these contestable statements before they were published (…before the barrage of responses come through about the various CWG sub-committees, it’s just not the same a having a seat at the adult’s table)
4. The looseness of the CWG language (much of which has been identified by SiFA) leaves many of the outputs open for interpretation… and that usually doesn’t bode well for industry participants during the heat of an argument
5. I remain ‘lost’ on the problem(s) that are trying to be solved by the CWG here. From an outside perspective, there appears to have been huge man-hours committed towards arriving at common sense.
6. Whilst it’s not part of the CWG Terms of Reference, I can’t help but thinking that the combined impact of the Australian Royal Commission and exodus of larger financial institutions from wealth management will have a significant influence on shaping the NZ industry’s future.
Well done to SiFA for devoting time and energy to this - and in advance - to the CWG for [hopefully] considering these perspectives.