[GRTV] Code gets eight out of 10 from long-time critic

Adviser advocate Murray Weatherston says the new code is good for advisers - but there's an elephant in the room.

Monday, May 20th 2019, 11:28AM

The new code of conduct for financial advisors has finally been approved and joining me is Murray Weatherston. Now Murray is an AFA. He also was the Chairman of SIFA for quite a while. And as readers of Good Returns would know, he has a lot to say about the Code and the process which has been developed and how it's gone. Welcome Murray. Great to have you in the studio.

Thanks, Phil.

So a score out of ten, now we've got the code. How do you rate it, what number?

Oh I would think with what we've ultimately ended up with, it's got to be at least an eight out of ten. Maybe even more. It's not so much anymore the stuff that they were trying to put in, but I think there's probably a few areas where the Code will actually prove to be lacking. And where the FMA as the monitor will be anxious to whack some guidance notes in.

So through SIFA you made a lot of submissions and suggestions on the two drafts of the Code we had, what was your success rate of getting changes?

Well, I reckon we were remarkably successful. I've always complained that it's been a waste of time putting in submissions because, up until now, on all the things that we've done since 2014, I can only see our fingerprint on two changes. But I reckon - two changes not only in the Code, but on anything else. And actually with respect to the Code, I think we're batting - if we use the baseball term, batting out of a thousand, we're batting eight, eight or nine hundred out of a thousand. I can actually put a "tick" against most of the things that we say were crazy in the original versions that they came out with, and they've all disappeared.

Well you must be pretty happy.

That's right. And you've seen on Good Returns, I actually said they deserve some applause.

Yes, I saw that, and I thought, well you know we better put that up in highlight!

That's right!

In the code, one of the things that they haven't covered off is replacement business and I'm interested in asking you this question as a director of New Park, which is an organization which is very big in that space. What do you think they should have done in replacement business?

Well, replacement business is actually an elephant in the room. It underlines the churn report and there's lots of anecdotal stuff that the banks - when their people do insurance, they don't even take into account whether or not their customer actually has insurance anywhere else. They just completely ignore it and they wack in a new product, which unsurprisingly happens to be the bank's product.

So that should have been in the code?

I think it should be in the code. I think this actually, it should have been an obligation in the Code where somebody was advising on replacement of life and health business, right? They're different from fire and general - fire and general is annual contracts - that the company can actually cancel. But life and health, they are continuing businesses. I think there should actually have been in the Code, a requirement that where you were recommending, where the client had an existing policy, the advisors should actually have to say whether or not they were advising on the other policy. And then if they weren't, that had to be pretty clear. We actually submitted from SIFA, that in fact, the FMA should put out a public guide for why you should not change your insurances and those things. All the things that could go wrong and it should be an obligation of the advisor to actually explain the differences between the policy you got and the policy that they're proposing that you get.

So you would have liked to have seen that-

Definitely would have liked to have seen that.

That was a big omission. CPD was another issue which a lot of people criticized.

Well the CPD thing is actually quite interesting because it's open-ended. Basically it just says you have to have a plan. I'll give an example of what I might do. I might say "look we've just been through" - because the two things you have to talk about are your competence, knowledge, and skill on the one hand, and the regulations on the other - I might draw up my plan and say "we've just been through five years of reform. I've been pretty involved all the way through, I don't think I need to do any CPD on that". Equally on knowledge, competence and skill, they're actually aren't very many changes in the academia of financial advising and all the rest of it. So why do I need to do anything? And in the extreme you might say, "Well, I don't need to do anything." But in order to keep the regulators happy, you'd say "well this year I'll do two hours on some part of ethics, for example. And that will be my plan." Now, the problem that'll come is when the monitor comes in to monitor my CPD plan, we will have an argument about whether my CPD was appropriate or not. Our view was always that the AFA code had it right. Basically you're in charge of your own CPD, it had to be within your plan, it had to be delivered by the expert, you had to record it and all the rest of it. And you had a minimum of 15 hours, or 30 hours every two years, 15 hours a year. And our recommendation was that in order to avoid the problems that I think will occur, like me putting in mine that says "two hours on some ethics topic in the monitor things", I should have been doing other things. There should have been a safe harbor.

We're always are going to have this issue around recognized prior learning, because that's not being outlined as well. I mean there's going to be buses driven through there, isn't there?

Well I don't know whether there's gonna be buses driven through it, but there will be a lot of people who will say, "I've been in the industry for a long time" and we hear that all the time, and "I don't need to go and do level five, and it's not appropriate, a lot of the stuff that I have to do actually isn't involved with what I do in the life and health area". They're gonna say "I've got enough experience".

The problem is going to be how do you prove, and to whom, that you have actually got that prior experience or that prior learning?

Do you think they sort of backed off this because they thought if they actually put level five and these things in there, that people were going to leave the industry and we're gonna have a big exodus of advisors?

I think that's quite possible. They're trying to be inclusive, and they're saying there's all these different ways you can do it. But the problem will be when the rubber hits the road, when the first person actually says "I've got a problem". Now I know of somebody who's an AFA who actually needed to get an Australian course or something recognized as part of the AFA. It took them forever, it cost them a lot of money and a lot of time. And at the end, they actually said to me that they would have been better off just doing the course.

Basically the recognition of prior learning thing, it's there as a possibility, but the proof is gonna be how the heck do you do it?

A lot of these courses and webinars which have been put up there to meet the current requirements, I guess are not going to be so needed now, are they?

I would imagine some of the professional bodies will take the opportunity to see minimum levels of CPD for their people as a guide.

So it might create an opportunity for these associations to actually raise the bar for their members?

For their members, but they'll be lots of people out there who will try to offer CPD and say that this counts and all the rest of it. In a sense you have to have a CPD plan, but what's in - at this point in time - looks to be completely open until my view, until the FMA comes along and does it's guidance note, that it actually tries to put some parameters around it.

And the other one which wasn't covered often in too much detail was conflicts of interest, which if you look at all these conduct reports and everything else is the big topic these days.

Absolutely. Well, conflicts of interest gets a mention as part of integrity. One line is part of integrity. Most ethics codes have stuff in them about conflicts of interest. And they've just left that completely alone.

I know you made a comment in Good Returns is that the FMA will love us because they can now start to write lots a guidance notes and get out there and take more control of the industry. Is that really what you think will happen?

Absolutely. In a sense the code sort of sits up here, but there's a lot of gaps down below, and if you sit down and say if I was monitoring against that code, in a sense the code is empty, so there's nothing to monitor against it. The simple case is that CPD thing. How do they monitor my two hours on ethics for this year is all I think I need to do?

It's gonna be interesting to see what happens. Now previously before when we talked about this, you've been a bit concerned where it was all going and once SLAB is passed and the code was in place, you thought that was going to give the date you left the industry? Is that still the case?

I'm seriously reconsidering that.

Okay, so you, you might carry on.

Yeah. And it's because, what's actually happened is in the code that's come out, they've got rid of all the fluffy stuff. All this overarching stuff that they were trying to put in. All the fluffy words, which mean well, but what does doing the right thing mean?

Well I think they recognized early on that that wasn't going to-

Well I don't think they recognized it early on because that was actually in their second draft. They were trying to put an over-archer in the first draft, and the second draft they had words like "you have to obey the spirit of the code" and all the rest of it. And the very positive things I see is getting rid of what I'd call the "sins of commission" that they actually reinforce. They no longer talk about minimum standards. If you note the word is standard.

And minimum standard sort of says "well this is what you have to do, but there might be something more". Coming back to the word standard, which was something that we were strong on, actually means that there's the standard. Jump the hurdle or not. There's not, if you jump the hurdle, there's another hurdle that maybe you should have done. And the things like "spirit of the code", and they had that naked statement that they had originally in code standard one, not originally in the draft before this one. They talked about you had to "treat the client fairly and act in the client's interest". They had a whole pile of stuff about acting fairly, which they've kept in and that's clearly part of the ethics.

But they've got rid of the "act in the client's interest" because they haven't wanted to actually try to explain what it is. So it's all those things they've taken out which were the things that really worried me. Means that what they're left with, and the reason I get 10 out of 10 is because I think onely, the code is actually pretty slim. It's not even 2000 words. But having got rid of all those things that I thought were the nasty things -

And the other things that you could get caught up on

You could completely and innocently get caught up on.

Well that's good to hear that you might hang around. So I might have you back in the studio again?

That's right. Well I, even if I wasn't hanging around, you could still have me back in the studio.

Thank you Murray. And again I thank you for your time and I appreciate your insight into the Code.

Thanks, Phil.

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Tags: Code CPD