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Brief Counsel

Last chance to comment on the Code

16 July 2010

An updated draft Code of Professional Conduct for Authorised Financial Advisers (AFAs) has been released for consultation in the wake of the extensive amendments to the financial services regime. This is the final opportunity for stakeholders to comment on the Code before it is recommended to the Commissioner for Financial Advisers.

The document is also relevant to QFEs as the amended Financial Advisers Act (FAA) specifically requires the conduct and competence requirements of their advisers offering personalised services to retail clients on category 1 products to be benchmarked against the Code. 

Submissions are due before 5pm, Wednesday 21 July.

Content and scope

The draft Code has been cut back to 17 standards and follows the approach taken in the recently amended legislation, imposing different obligations on AFAs based on the nature of the services they are performing (“personalised” or “class” services), and the nature of their clients (“retail” or “wholesale”).  

However, with the exception of the competence requirements, the standards do not distinguish between the type of products (category 1 or category 2) or the service provided (advice, discretionary investment management or investment planning). 

The issues paper from the Code Committee suggests that this is deliberate.  The Code, as provided for in the FAA, is designed to set out the minimum standards of professional conduct required of AFAs in all aspects of their performance, not just in relation to the provision of particular services.  Hence the Code requires that AFAs place the interests of the client first and act with integrity at all times, and not do or omit to do anything (whether in the course of their financial adviser services or otherwise) that would or would be likely to undermine public confidence in the professionalism and integrity of the financial advisory industry, or bring the industry into disrepute.The standards remain broadly principle based, rather than prescriptive, and are divided into four categories:

  • ethical behaviour

  • client care

  • continuing professional training, and

  • competence, knowledge and skills. 

Competence

The over-arching competence requirement has been tightened to restrict AFAs to providing only the services that they have “a reasonable basis for believing” they have the “competence, knowledge and skill” to provide. 

The Committee clarified that it is not necessarily sufficient to attain the National Certificate in Financial Services (Financial Advice) (Level 5) (National Certificate) and be authorised.  This standard is intended to impose an additional layer of minimum competence, over and above the general “unit standard” competence requirements. 

Specific relief from certain unit sets within the National Certificate has been provided for class services, advice to wholesale clients and discretionary investment management services.

The recognised alternatives to the various unit standard sets within the National Certificate have also been expanded:

  • recognising a broader range of New Zealand issued tertiary qualifications at degree level or above, and the designations of being a member of the New Zealand Institute of Chartered Accountants or an NZX Associate Adviser as alternatives for unit set A, which concerns knowledge of the industry, financial markets, the advice process and products

  • exempting NZX advisers, Certified Financial Planners and Chartered Life Underwriters as alternatives to unit set C, which concerns advisers’ practice and processes, and

  • adding a New Zealand Diploma in Life Assurance and a Graduate Diploma in Business Studies personal risk management or personal financial planning from Massey University Standard as alternative qualifications for unit set E, which concerns insurance and mortgage broking.

There is still little discretion in the standards and little, if any, recognition of foreign qualifications.  However, the Securities Commission can now grant exemptions from this (and any other requirement) under the amended FAA.

Standards removed

The obligation for AFAs to notify the Commission of a breach of either the FAA or the Code by another AFA has been replaced by a section in the FAA that provides protection for AFAs who choose to report suspected non-compliance.

The two standards that related to broking services have also been removed, as broking services now fall under a separate regime in the FAA.

Submissions

The issues paper summarising the approach taken by the Committee on major submission points already raised, the draft Code and the associated information document released by the Code Committee are available here.

Chapman Tripp will be submitting on the draft Code following the public meetings with the Code Committee.  A copy of our submission will be available from our website.  For further advice, or help with preparing your submissions, please contact any of the .

Our thanks to Pippa Tasker, Solicitor, for writing this edition of Brief Counsel. 

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