Draft Code Concerns Addressed


The Financial Advice Code Working Group has answered questions on the draft Code, during a live webinar it hosted recently.

Queries on CPD, new entrants and replacement business were among the concerns raised by participants.

Code Working Group Chair, Angus Dale-Jones

Code Working Group Chair, Angus Dale-Jones, answered a question on the differences between the AFA Code and draft Code, noting that the draft Code:

  • Applies to a broader set of people in terms of kinds of standards
  • Reflects the new legislation
  • Is less prescriptive

CPD clarification 

Dale-Jones said they had received a great deal of feedback on having not specified the minimum number of continuing professional development (CPD) hours needed in one year.

He said two reasons they chose to include CPD in the draft Code in this way were:

  1. Keeping away from process (based on feedback from the CWG’s first consultation)
  2. It is a detail for the professional associations and FMA to consider

Strategi Institute also raised its concerns around CPD recently (see: Strategi Voices Concerns on Draft Code…).

Code Working Group Member, Barbara Benson, added that CPD is about what you learn and keeping up to date rather than about time-serving.

“It is about taking the professional responsibility on board as each individual providing advice,” she said.

CWG Member, John Berry, also said that they are designing a Code for a wide audience of 25-30 thousand advisers which makes it hard to be prescriptive while keeping the Code principle-based.

He said CPD is something that professional bodies could perhaps set a higher bar on, explaining, “…we’re trying to set a principles-based minimum but professional bodies are very free to set higher bars”.

Requirements for new entrants 

Another participant questioned whether new advisers coming into the industry would need to have the Level 5 qualification.

Noting that to be a financial adviser, the Level 5 or equivalent is required, Berry explained that those entering the industry would be trained as a nominated representative and would not need to attain a Level 5 before they started interacting with clients.

“[New entrants] come in and they are not Level 5 qualified but the process and systems and guidance that you wrap around them in your business, whether you are a large or small business, will make sure that the standard is appropriate equivalent to them being a financial adviser, even though they are new to the industry,” he said.

Replacement business 

Another participant asked about the replacement business example provided under Standard four in the draft Code (below) and whether minimum process should be more robust in the example.

Example: Beth, a financial adviser, recommends that a client replace an existing life insurance policy with a new policy that provides similar benefits to the existing one. The nature and scope of the financial advice given by Beth excludes a comparison between the existing and the new policy. Beth therefore explains to the client that there are some situations that are covered under the existing policy (including specific benefits, premiums applicable now and in the future, health events or life events) that may not be covered under the new policy, and conditions that may apply because of the replacement (such as a requirement for underwriting, loading as a result of the change in health circumstances, and any stand down periods). Beth checks that client understands each of these risks and consequences.

Dale-Jones acknowledged the example will need changes and asked for input from advisers to provide examples of the examples to be included in the draft Code, particularly on what elements of replacement could be highlighted better in the commentary.

He noted one aspect of the regime is to avoid artificial barriers.

“Nature and scope now exists in the legislation so the Code can’t restrict the scope of advice,” he said. “All we can do is trigger consequences if replacement advice is scoped in a particular way and that is what we have tried to do through code standards four and five.”

“The consumers view on whether they trust advice givers will depend on what they think of the whole advice world and does this Code work for lifting that advice standard for the whole advice world in an appropriate way?”

Wrapping up the webinar, Dale-Jones urged advisers to consider the draft Code not from a compliance lens but from a professions perspective also.

“Is this a profession that consumers are going to trust? Will this encourage people to start getting advice of all different shapes and sizes?” he asked.

“The consumers view on whether they trust advice givers will depend on what they think of the whole advice world and does this Code work for lifting that advice standard for the whole advice world in an appropriate way?”

Click here to make an online submission on the draft Code by Friday 9 November.