Angus Dale-Jones, chairman of the Code Working Group, shared insights on the upcoming regulatory changes. Dale-Jones mentioned that the workload of advisers is going to change. Unlike the current regime, Dale-Jones noted that the new regime will not allow advisers to be easily let off the hook. Instead, Dale-Jones says in the new regime advisers will need to do more for their clients. Although all advisers need to adjust their service to meet the regulatory obligations, there will be scalability in provisions. Dale-Jones said that the code is designed around scalability, meaning that the effort and work advisers are expected to put in depends on the advice given.
“To help advisers prepare, Good Returns talked to chairman of the Code Working Group Angus Dale-Jones who told us what changes are most vital for advisers to take note of.
Dale-Jones said that for many “the amount of work that the adviser is going to have to do will change”.
According to Dale-Jones this contrasts with the current system of class advice, which he believes has been too soft on advisers.
“Class advice [has] basically allowed advisers [to be] let off the hook. The current regime has encouraged advisers to do less for their clients. Which is not a good outcome for anybody including the advisers.”
But this will all change when the code of conduct comes into play on March 15, “The new regime holds that no matter how big or small you are, the code of conduct and the regulations apply. But, there is scalability in the provisions. If it is a very simple piece of advice, say advice on KiwiSaver, then you adjust your work accordingly. If you are doing full blown investment planning, then you would expect to see much more work around that.”
Scalability of advice is central to the code for Dale-Jones who says that, “The code and the legislation have been designed with scalability in mind. This isn’t as if we have switched the boundary. It means that whenever there is advice, the code applies. Advisers need to think very carefully as to how it applies.””
Dale-Jones also highlighted that FAPs will need to consider processes and procedures that advisers follow. Two code standards will become relevant to advisers in the new regime. Standard three and four weren’t previously requirements but are intended to protect clients. Dale-Jones has said that he is confident that much of the industry will handle the new standards with ease.
“It is not only the adviser that needs to be thinking carefully about the scope of their advice, the new regime and its focus on FAPs means that, “FAPs as the licence holders under this new regime, need to think about the processes and procedures that its advisers are going to have to follow in order to comply. It’s not all just on the shoulders of advisers.”
For advisers who have grown used to doing things the old way, Dale-Jones says that there are two key code standards that they will need to pay particular attention to.
“The two standards that have not been formal requirements previously are standards three and four. Standard three is to ‘give financial advice that is suitable’. So that means that the adviser needs to think about the circumstances of their client and consider what suitable advice means for them.
“Now there isn’t a code standard that applies to that in the class advice standards currently, but a person giving class advice who goes and tries to sell things against their client's interests is risking legal action. This code just makes it very clear that this is a standard that must be adhered to.
“Standard four is ‘ensure that the client understands the financial advice’. Now that standard asks advisers to put themselves in the shoes of the client to ask themselves: ‘Is this client vulnerable? Does this client have any understanding of financial matters? Do I need to explain things more to help the client understand?’
“Now this is something that a good practitioner should have been doing before anyway, but now there is a code standard that makes this a requirement so it becomes much easier for the regulator to say, ‘You did not do that, you don’t have a file note to demonstrate how you have done that, so you have not complied with the law.’ So the law has become far more precise in saying what needs to be done.”
With all the changes coming, Dale-Jones is confident that most of the industry will be able to handle the new standards with ease.” Click here to read more
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