Code Working Group provide insight into new code, and more daily news

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

In other news

Cigna: “Blue Star, our collateral provider, is in the process of upgrading their platforms which support the ordering process. To complete this they’ll be temporarily shutting down their online ordering portal on our Adviser Hub from 11am on Friday 4 December until 8am on Monday 7 December.

All emails regarding new business should still be sent to, all other emails regarding existing business should be sent to”

BNZ: BNZ was warned by the Commerce Commission over responsible lending and disclosure failures

Southern Cross: Couple's $25,000 bill after cancer surgery only partly covered by Southern Cross

FSC Generations: Professional Advice - Get In Shape: The Next Bite of the Apple, supported by Chatswood Consulting

Chatswood Consulting is pleased to support the FSC's Generations conference and the professional advice session in particular. In a time of great transition, why not meet with the decision makers of the regulatory change?

This year’s panelists

  • Sharon Corbett, Manager Financial Markets, MBIE

Sharon manages the financial markets policy team at MBIE. She has been leading the Ministry's team amending New Zealand's financial advice legislation since the review commenced in 2014

  • John Botica, Director of Market Engagement, FMA

John Botica is the Director of Market Engagement at Financial Markets Authority. John is an experienced senior executive, director and consultant in the financial services industry. He was co-founder of the Assure NZ Group, Managing Director at Guardian Trust and General Manager Wealth Management at AXA

  • Angus Dale-Jones, Chair, Code Working Group

Angus is the Chair of the Code Working Group and is a chartered accountant and former financial services regulator in Australia and NZ. Angus runs a conduct, compliance and regulatory strategy consultancy

  • Derek Grantham, Principal Consultant, FMA

Derek works directly with the Director of Market Engagement, and has successfully represented the FMA at numerous industry events, often as a speaker or panelist. This has helped build effective relationships between the regulator and market participants and presented the FMA as a modern and approachable regulator. He is passionate about engaging with the financial sector to ensure that New Zealand financial markets remain transparent and fair.

Why you would attend

In this time of change, some may feel overwhelmed, some may be looking for further insight and guidance while others may want reassurance that they have made the best possible choice for their adviser business.

The FMA recently reported that over seven thousand advisers are associated with transitional licenses and that two thousand advisers are yet to apply.  Hear directly from Director of Market Engagement, John Botica and Principal Consultant Derek Grantham from the FMA on all that you need to know about transitional licenses. Sharon Corbett, Manager Financial Markets at MBIE and Angus Dale-Jones, Code Working Group Chair, will be part of the panel to share their insights.

The line-up of panelists provides any advice professional the opportunity to gain a better understanding of different aspects relating to transitional licenses.

Benefits of attending

  1. Hear directly from the regulator
  2. Independent industry expert insights
  3. Your licensing questions answered

How to attend

Find out more about the programme and how to register at this link.

Learn more about structuring your adviser business for the new regime

If you want an unbiased view on the right next steps from a structuring point of view, do contact us, we are happy to engage with your preferred compliance consultants to bring an industry and environmental context to your decision, or recommend either of our preferred consultants to help you make that choice. 

LATEST: New Financial Advice Code Approved

The new Code has been approved. Here are the links you need:

New Code


Draft Financial Advice Code - Code Standard Six and Seven

Here are the draft Code Standards, again with commentary omitted for brevity - but still recommending that you read the full text.

[Standard 6] Protect client information
A person who gives financial advice must take reasonable steps to protect client information against loss and unauthorised access, use, modification, or disclosure.

[Standard 7] Resolve complaints
A person who gives financial advice must provide arrangements for resolving complaints by clients.
A complaint is an expression of dissatisfaction made to or about a person, related to its products, services, staff or the handling of a complaint, where a response or resolution is explicitly or implicitly expected or legally required.

One concern - and it must have been a tension present in more areas of the draft Code than just these two areas - is the extent to which the Code might cover requirements for Financial Advisers that are already present elsewhere. Either in FMC Act (once amended), or in other law or regulation. These privacy and complaints process are two such areas where the Code Working Group is introducing a standard that is well covered elsewhere. The danger of doing so is that the standard somehow varies. The potential for variation, especially in a Code which is meant to be brief and easy for clients to understand, is significant. The standard on complaints includes a definition of complaint so broad that it would appear to include any vaguely expressed gripe. In the commentary it appears to suggest that all these must be resolved using someone other than the adviser. For smaller businesses this would mean many frequent referrals to the dispute resolution body. I am not sure that is the intention.

Two solutions exist - remove these standards, or make them work better as signposts. The signposting approach to drafting has been used elsewhere - there are several direct references to the law - and could be used here as well, drawing attention to the regulatory requirement for a dispute resolution scheme, and the requirement to maintain competence to meet privacy law and regulation.

Draft Financial Advice Code - Code Standard Five

The Code Standard as drafted is:

Give financial advice that is suitable for the client

A person who gives financial advice must ensure that the financial advice is suitable for the client. The person must have reasonable grounds for the financial advice, having regard to the nature and scope of the financial advice and the client’s circumstances.

Reasonable grounds for the financial advice means grounds that a prudent person engaged in the profession of giving financial advice would consider to be adequate in the same circumstances, including in relation to:

  • the strategy underpinning the financial advice
  • each financial advice product covered by the financial advice.

The client’s circumstances means those aspects of the client’s situation, needs, goals, and risk tolerance that a prudent person engaged in the profession of giving financial advice would consider to be relevant to the financial advice.

I have omitted the commentary, for the sake of the length of this post, but it is important.

First, I have heard people question the use of the first dot point: "...the strategy underpinning the financial advice..." I must admit, this sounds like it emerges more from the concepts of investment advice, than risk, home loans, or other areas. Having felt that, after sitting with the text for a while, I am not unhappy with the requirement. I can imagine part of the statement of advice listing client goals, and then a statement of strategy which addresses them, and selections for actions and products which deliver on them. Get these three in alignment and the plan should easily meet the test. For strategy, think "main overarching approach". A client with a need to save money may see a "strategy of reduce cost and buy value" delivered in cutting out bells and whistles and increasing excess levels. So I guess I have come around to feeling comfortable with this requirement. The recommendations section of the SOA may break down as "Strategy, actions, products" in a series of headings.

My concerns are that there are two tests offered in the Code, one is the advice is suitable given the nature and scope of the financial advice being provided. The other is that of "...a prudent person engaged in the profession of giving financial advice would consider to be relevant to the financial advice". The first test is in the hands of the client and the adviser, the second is in the judgement of the FADC about what an industry professional who is 'prudent' would seek. Although, to some extent, that view is kind of implicit in the whole process of the FADC, I prefer the primacy of the client and adviser scope, and that one should have priority.


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.







Code of Conduct - and Fees for No Service

An interesting discussion yesterday about whether a service standard should be included in the new draft Financial Advice Code. There is a widespread belief that providing ongoing advice service should be part of the Code, and some attempt should be made to define the service, and place it in the Code.

Defining the service is a tough ask. I am not in favour of the Code requiring certain types of service, charge, or economic activity. That was rejected by MBIE in drafting the law and if you like innovation, flexibility, and freedom, then you probably think that was a good idea. I am also concerned as to how we would define the service, at what thresh-hold level of renewal commission we might require it, and whether we might bind an adviser to a situation where they were required by the Code to provide a service that was uneconomic, in the case of very small renewal commissions.

But the problem is real, as illustrated from Australia, is when a financial adviser receives a payment for no service given. Plainly, this is wrong. I recently had my neighborhood gym charging me for personal training, with a trainer that had left the business. Unnoticed for some months, I was not happy when I found out. Consumers are like that. In Australia, such advice fees were charged in some cases, even on the accounts of people who had been dead some time. It is not a good look.

But there is a solution, possible with relatively little complication to the admirably principles-based design of the Code.

In Code Standard One, in the commentary, we could add an illustration that it is never fair to receive a fee or commission when no service is provided and no reasonable attempt has been made to provide the service. That would leave the exact nature of the service, the value proposition, the form of charge and so on, with advisers. It would also clearly signal that fee for no service is unacceptable.

New Financial Advice Code

The new, slimmer, fitter, Financial Advice Code is quite an update on the consultation document we saw last. The much more focused style, using plainer language, and pitched at the level of principles makes it a much more accessible document. That is ideal. The financial advice industry can spend a lot of time arguing over how to meet these principles, but the document should be readable by clients, and allow them to use it to judge whether the service they are getting meets the Code.

The broad approach to treating clients fairly, and acting in their interests brings in wider business practice, not just advice given. This approach is present in several of the standards, but show up especially well in standards one, two, and four. That fits well with the current conversation about conduct, especially some practices highlighted by the Australian Royal Commission.

There is quite a lot of detail to unpack in each section. One worth spending time on is the subject of conflicts of interest. Here the entire wording is 'standard' not 'commentary' and there is a direct quote from the relevant section of the law. Along with all the debate around the law, MBIE's long review, and their recent comments on commission, we should see clearly the role of commission in this standard, and the importance of avoiding conflicts where possible, and managing them where it is now. That connects really well with the next standard, which is headlined as dealing with client understanding, but under that heading then correctly identifies that explaining the risks and consequences of scope limitation as the main task in meeting that standard.

I was delighted by the use of an insurance example, but disappointed by the detail in the example. Apologies to Code Working Group members that may feel this is nitpicking, but my compliance consultant and I went over this one, and … the example is flawed. It states that a comparison is excluded, but then goes on to state that there ARE things in the current policy that MAY NOT BE covered under the new policy, thereby implying that the old policy has been reviewed and, worse, the adviser is uncertain of the cover being offered under the new policy being recommended. Surely, if no comparison is being done, this wording should be the other way around, along the lines of, “It is possible that the new policy may not provide cover that is provided under the old policy but, because no comparison has been completed, such circumstances, if any, have not been identified.” I also note that the example doesn’t include any comment on what limitations on the product range, if any, that apply, being the first bullet point under the Code Standard – another major omission, I suspect, noting that this point is explicitly covered in the bank term deposit example provided under Standard 5. I note that Katrina Shanks and Simon Hassan picked up the same point as you can reference at this link.

Clearly a great deal of discussion has focused on the shift in competence requirements, dealt with in standards 9 through 12. However, given the, now extended, timetable for implementation in conjunction with the reduced requirement, and the transition period, there is plenty of time to meet the required standard. It is compliance with the first eight Code standards, and particularly standards three, four, and five, that should be the focus. More on those soon.

A more detailed reflection on the draft is available to Chatswood clients to contribute to the work they may be doing in formulating their contribution to the consultation process.