New code: Shorter, sharper than draft

The clock is now ticking for financial advisers to get ready for life under the new code of conduct for the sector. But the version that will come into force is different to that the industry saw during consultation.

Wednesday, May 8th 2019, 6:00AM 5 Comments

Commerce Minister Kris Faafoi has approved the code, which means there will be about nine months until it comes into force.

Existing advisers will be able to make use of a transition period to work towards meeting the new standards set by the code.

While the industry was told little change was likely, there are some significant alterations made in the final version.

Code standard one requires advisers to "treat clients fairly" - removing the proposed "and act in their interests".

Some submitters during consultation had said this crossed over with the requirement in law to give priority to a client's interest.

The code notes that "fairly" will mean different things in different circumstances, but that it includes treating clients with respect, listening to them, considering their views, communicating clearly, not applying undue pressure and not taking advantage of vulnerability.

It notes it does not meant that clients don't take any risk, or are not responsible for their decisions.

A standard requiring advisers to manage conflicts of interest - and avoid them where practicable - has been dropped.

Instead, giving financial advice that is "suitable" has been moved to place three.

The code notes that should mean having "reasonable' grounds for advice. "Reasonable grounds for the financial advice means those grounds that a prudent person engaged in the occupation of giving financial advice would consider to be appropriate in the same circumstances."

Sometimes that would mean a detailed analysis of the client's circumstances were required, or sometimes the adviser might be able to make assumptions based on their characteristics.

Proposed standards requiring advisers to resolve complaints and not bring the industry into disrepute have been removed.

COMPETENCE

The code confirms that the standard of general knowledge and skill is that the person has the capabilities equivalent to the general qualification outcomes of the New Zealand Certificate in Financial Service, Level Two.

They could do this by holding either the first or second version of the certificate, having completed the National Certificate, or by being an AFA before the code took effect.

The draft was contentious in that it expressly allowed entities to have procedures and systems in place to backfill an individuals’ competence and skill.

The new code says only: "A person may demonstrate competence, knowledge, and skill in a way that is different from those listed above, for example by reference to the financial advice provider’s procedures, systems and expertise."

There is no further clarification on the number of CPD hours required - the code only says that individuals must annually plan for and complete learning activities to ensure they maintained the knowledge, competence and skill required and understand the regulatory framework.

THE CODE
1. Treat clients fairly
2. Act with integrity
3. Give financial advice that is suitable
4. Ensure that the client understands the financial advice
5. Protect client information
6. Have general competence, knowledge, and skill
7. Have particular competence, knowledge, and skill for designing an investment plan
8. Have particular competence, knowledge, and skill for product advice
9. Keep competence, knowledge, and skill up-to-date

Tags: Code Code Working Group

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Comments from our readers

On 8 May 2019 at 9:19 am Doggy said:

And so it begins. No doubt further confusion and unintended consequences will reign large as people grapple with what exactly this means at the pointy end of the stick when a dispute arises.

On 8 May 2019 at 9:34 am Simon H said:

Great news! A simpler Code whose primary client care requirement is to treat clients fairly now leaves meaningful space for a professional body to require a higher 'client first' standard of its members.

On 8 May 2019 at 10:10 am Murray Weatherston said:

There is nothing in the Code (and the underlying law) that says "it's not client first."
I would sincerely hope that the objective of the Code was not to leave so much out as to promote professional bodies.
I have always thought that the moment the Government agreed not to have self regulation was the moment that professional bodies would have given up their dream of ruling the world by having their own set of rules - the fact is the Government has set the rules.
It will be extremely confusing for consumers if professional bodies now go out and say that the regulators' rules are not good enough - and ours are better.
That would not be promoting the benefit of advice generally to the public. That would just be a naked pitch to the consumer that they should "only get advice from us".

On 8 May 2019 at 12:13 pm Pragmatic said:

Good observation Murray. In fact it would be useful to receive the industry body’s reaction to the code.

On 8 May 2019 at 2:07 pm VonProfelow said:

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