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RFAs: what is a reasonable standard of advice for the FMA to judge policy switches?

Susan Edmunds has this piece on goodreturns which asks the question about the standard of advice that will be applied to RFAs - with a focus on the future. However, there is, of course, a current question: what is the standard of advice the FMA will use when it looks at cases where RFAs have recommended policy replacement?

RFAs that have higher lapse and new business rates than usual have been identified. Having received request for information letters from the FMA, will be pondering the answer to that question. Although they have only been asked to supply a list and details of remuneration, it should be expected that they may be asked to show evidence that their advice demonstrated reasonable care, diligence, and skill. Although there is no equivalent of the AFA Code there has been some guidance: during the last five years we have looked at the examples of guidance offered to RFAs (such as this page on the FMA website) and recommended that advisers meet at least these standards.

Of course, there is always the AFA Code, too. Advisers that only provide advice relating to category two products have sometimes asked us whether they 'should become AFAs.' Our understanding is that this is not an option - you are either selling category one products or you are not. However, meeting the requirements of the AFA Code has always been available as a guide to required standards of process. Those advisers that have followed the Code will probably feel more comfortable when asked to provide details of advice. 

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