The proposed new Code (The Code of Professional Conduct for Financial Advice Services: Consultation draft October 2018) has been a long time coming but is worth the wait. It is easy to read, it makes sense and it creates a framework to enable future financial advice providers (FAPs) to operate in a way where they can provide a more streamlined, relevant and effective service to clients. A few tweaks are needed but it is unlikely any major changes will be required.
Financial advisers and businesses should not fear the proposed Code. It is unlikely to drive small advisers out of the industry and it is unlikely to impose a massive compliance burden on businesses. The key to building a profitable FAP is to take the time now to reassess the way you do business, carefully consider how you will embed technology into your advice and compliance processes and design advice documents that are quick to produce and clients are prepared to read.
How does the proposed new Code compare against the existing Code?
The table below maps the Code of Professional Conduct for Financial Advice Services (Consultation draft October 2018) against the Code of Professional Conduct for Authorised Financial Advisers. For brevity, the respective code standards have been paraphrased.
| Consultation Draft Code Standard | Equivalent Standard in Current Code |
|---|---|
| 1: Treat clients fairly and act in their interests | 1: Place client interests first and act with integrity |
| 2: Act with integrity | 1: Place client interests first and act with integrity |
| 3: Manage conflicts of interests | 5: Conflicts of interest |
| 4: Take reasonable steps to ensure that the client understands the financial advice | 7: Ensure clients have sufficient information to make an informed decision as to whether to use the AFA's services |
| 5: Give financial advice that is suitable for the client | 6, 8, 9, 10, 12: - Must agree on the nature and scope of the service provided - Ensure the advice is suitable for the client with regards to nature and scope of engagement - When providing an investment planning service or advising on Category 1 products, ensure the advice is sufficient to enable the client to make an informed decision - Record advice in writing - Must behave professionally, have competence, knowledge and skill, provide timely service, appropriate research, and communicate effectively |
| 6: Protect client information | 13: Ensure that records of all information and documents required under this Code are kept for a minimum of 7 years |
| 7: Resolve complaints and have a complaint process in place | 11: Have an appropriate internal complaints process in place |
| 8: Not bring the financial advice industry into disrepute | 2: Don’t bring financial industry into disrepute by your actions or omissions |
| 9: Have general competence, knowledge, and skill | 14: Must have the competence knowledge and skills to provide the service |
| 10: Keep competence, knowledge, and skill up-to-date | 15, 17, 18: - Undertake sufficient continuing professional training to meet AFA's competence to deliver the service (minimum of 30 hours over two years) - Must have knowledge of the Act, the Code and other legal obligations - Must keep and maintain a current professional development plan |
| 11: Have particular competence, knowledge, and skill for designing an investment plan (Investment Strand of New Zealand Certificate in Financial Services (Level 5)) | 16: Must have alternative designations/qualifications or the relevant strands of the New Zealand Certificate in Financial Services (Level 5) for the service provided. |
| 12: Have particular competence, knowledge, and skill for designing an investment plan | 16: Must have alternative designations/qualifications or the relevant strands of the New Zealand Certificate in Financial Services (Level 5) for the service provided. |
Key takeouts
- All those who give regulated financial advice to retail clients must comply with two overarching standards:
- The ethical behaviour, conduct and client care required by the Code;
- The minimum standards of competence, knowledge and skill (plus ongoing CPD) for the services being provided. The standard is that of the New Zealand Certificate in Financial Services (Level 5) and the relevant specialist strands.
- Advice and communications should be timely, clear concise and effective. Steps should be taken to ensure clients understand the advice and that it is suitable for their needs. Consideration: Review all your advice processes and templates and look to see how they can be more client-centric and relevant to the way the client wants to engage with the business.
- Ensure the client understands the service you are proposing to provide then only provide the level of information that is needed to enable the client to understand the advice you have provided. Consideration: Don’t automatically scope out a whole heap of the advice that the client needs. Upskill yourself via relevant strands of the level 5 qualification so you can advise on what clients need or else have members of your team who can provide the extra advice to the client – ie: consider a team approach to meeting the client’s needs. Build succinct advice documents that do not contain extraneous information. Strategi can suggest multiple ways to redesign advice documents.
- Take great care to protect client information. Consideration: Get Strategi to undertake a review of your technology and security to ensure you are protecting client data and not misusing it.
- Fully embrace the complaints process. Note that “a complaint is an expression of dissatisfaction made to or about a person, related to its products, services, staff or the handling of a complaint, where a response or resolution is explicitly or implicitly expected or legally required”. Consideration: Read the complaints handling module on Radar, review your complaints process and ensure you are recording in your complaints register every complaint and the actions taken to resolve it.
- Exercise care, diligence and skill and the minimum standards of general competence, knowledge and skill is the New Zealand Certificate in Financial Services (Level 5) and the relevant specialist strands. Consideration: If you have not already started the New Zealand Certificate in Financial Services (Level 5), then it is recommended you start sooner rather than later so you can obtain the basic certificate now, then any additional specialist strands during the transition period. In 2019, you will be busy getting your compliance, technology and business arrangements sorted so getting the bulk of your Level 5 qualification out of the way now makes good sense.
- Keep competence knowledge and skill up to date so it is equivalent to the latest Level 5 qualification. Consideration: Contact Strategi Institute to find out what is in the latest qualification so you can build your professional development plan (PDP). Subscribe to Radar – the Strategi Institute online education portal that has over 300 CPD modules. This enables you to access a massive range of CPD content 24/7.
What should I do if I have the old Level 5 qualification?
The old Level 5 qualification (National Certificate in Financial Services (Financial Advice) (Level 5)) can be carried into the new regime. However, you still have to prove you have the competence, knowledge and skill to meet the new Level 5 qualification.
Consideration: Undertake sooner rather than later the relevant specialist strands of the new Level 5 qualification you currently do not have. E.g.: If you obtained the old Level 5 with Standard Sets A, B, C and D but you also provide mortgages and/or insurance advice, then complete the Residential Property Lending Strand and the Life and Health Strand now. Wait until the transition period (2020-2021) to do the Strategi Institute Closing the Gaps courses to update your old Level 5 to the new Level 5 qualification.
What should I do if I am an AFA today?
Holding the AFA designation will enable you to initially prove you have the minimum competence, knowledge and skill. However, by the end of the transition period (likely to be 2022), you will be expected to meet the minimum standard of the new Level 5 qualification.
Consideration: Undertake sooner rather than later the relevant specialist strands of the new Level 5 qualification you currently do not have. E.g.: If you obtained your AFA status with some or all of Standard Sets A, B, C and D, but you also provide mortgages and/or insurance advice, then complete the Residential Property Lending Strand and the Life and Health Strand now. Wait until the transition period (2020-2021) to do the Strategi Institute Closing the Gaps courses to update your old Level 5/AFA status to the new Level 5 qualification.
What should I do if I have hundreds of advisers?
You are likely to be a QFE and possibly want to employ nominated representatives rather than financial advisers in your future FAP. If you do not want your advisers to hold the Level 5 qualification, then Strategi Institute has developed special packages to enable you to train your advisers to the level you want them to be at. In many instances, it may be cheaper and easier in the long run to use your qualified in-house trainers to deliver the Strategi Institute Level 5 strands and have Strategi Institute complete the assessments for those advisers. This enables your advisers to obtain the New Zealand Certificate in Financial Services (Level 5) qualification.
Not sure what to do or want more information?
Andrea Thomson is Strategi Group Client Success Officer. Her role is to help you navigate this regulatory transition and ensure you have the right plans in place to meet your obligations and build a solution you can profit from in the future.
Contact Andrea with any questions, or if you need assistance planning for the transition.