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Draft Financial Advice Code - Code Standard Five

Draft Financial Advice Code - Code Standard Four

This is the draft standard:

Take reasonable steps to ensure that the client understands the financial advice
A person who gives financial advice must take reasonable steps to ensure that the client understands the financial advice and all material risks and consequences of:

  •  the nature and scope of the financial advice (and of any limitations on the nature and scope)
  •  following the financial advice, including any associated fees and costs.

In addition, the commentary, as I has been identified before, contains a problematic example - which is understood, and at the recent briefing to the FSC by Angus Dale-Jones, it was explained will obviously be dealt with.

Two criticisms are leveled at the draft standard, commonly.

  1. that it does not make particular requirements for the range of products or services included
  2. that it doesn't work for generic or class types of advice
  3. that it doesn't provide a safe-harbour for definition of scope

On reflection, I prefer this draft to the wording in the current Code. I like that it is has a qualification of reasonableness, is framed in terms of client understanding, gives freedom to adviser and client to agree scope, and requires that whatever agreement is set, the material risks and consequences must be explained.

For example, whatever the range of products offered, whether it is many, few, or just one, the material risks and consequences of that limitation must be explained. There may be a better product out there, we have looked on so far. How far? Only the products of my employer, will have to be one common answer. That answer alone will help to signpost a critical limitation. What might be the consequences of that? There may be better products available. Depending on how the Code is enforced that could make products comparison a great deal more common. Of course, I have an interest in that, but I as a consumer I believe in the value of such comparisons, and I think that belief is widespread.

A good discussion was had at the recent FSC meeting with Angus Dale-Jones about what to do with more general types of advice - such as a sharebroker's research paper with a 'buy / hold / sell' recommendation, or an international investment guru giving a general talk about an asset class. There are some problems with these, and they may require some revision to the law. The Code, however, could operate fine, provided you define 'the client' as 'the attendees at this workshop, assuming general characteristics ... and disclaim appropriately'. That will require some flexibility and understanding on the part of the regulator. I can see that working, but I can also see why a safe harbour may be desirable in such circumstances as well. One will not likely be forthcoming.

Lastly, a reminder that with submissions on the Code due by Friday, we all need to get moving.








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