Financial Advice Code Working Group - news and updates

Keep up to date with the work of the Financial Advice Code Working Group by reading their news and updates.

Update 5 - Draft Code submitted to the Minister

6 March 2019

The Code Working Group has submitted the draft Code to the Minister of Commerce and Consumer Affairs for consideration.

The draft Code is based on the assumption that the Financial Services Legislation Amendment Bill will be passed in its current form. We have signalled to the Minister that the draft Code might need to be revised before its approval if any late changes are made to the Bill.

Shortly, we will publish the consultation submissions we received.

Once the legislation is finalised and the Code approved, we will publish it together with an impact analysis and a summary of submissions.

The timeline for implementation of the Code will follow the timeline for implementation of the new financial advice regime. Exact dates will be determined once the Financial Services Legislation Amendment Bill is passed and the Code is approved.

Following the Minister’s approval of the Code, there will be at least nine months before it comes into force, enabling people to make any changes they need to comply with it. There will also be a further two-year transition period for existing advisers to work towards meeting the new competency standards set by the Code.

Update 4 - Consultation update

Submissions closed on the draft Code of Conduct on 9 November and the Code Working Group would like to thank everyone who took the time to share their views.

We received over 100 submissions, many of which expressed general support for the draft Code. Submissions also provided some useful suggestions for how to clarify or improve particular standards.

We will now be taking some time to review the feedback received and consider where refinements to the draft Code are necessary, based on the points raised in submissions.

Read the draft Financial advice Code [PDF, 248 KB]

Update 3 - Consultation on the draft Code of Conduct

11 October 2018

Consultation is now open on a draft code of professional conduct for people who provide financial advice to consumers. 

Code Working Group chair Angus Dale-Jones says the Group has been working to create a workable and robust code that will help ensure the availability and quality of financial advice.

“Our role in developing the Code is to set minimum standards of ethical behaviour, conduct and client care, and competence, knowledge and skill that will apply to anyone who gives financial advice to a retail client,” says Mr Dale-Jones.

“Earlier this year we consulted on the key concepts and high-level approach, which gave us a clear indication of what people wanted to see in the Code. As part of this consultation we also conducted a survey of consumers’ experiences with financial advice, which provided some useful insights on what consumers expect and how a Code of Conduct could improve outcomes for consumers.

“We received a lot of feedback on the need to set robust and achievable competence standards, and have taken this feedback on board. The draft Code proposes to set competence equivalent to the learning outcomes in the New Zealand Certificate in Financial Services (Level 5), approved by the New Zealand Qualifications Authority in 2014.

“We have also taken a principles-based approach to ensure the Code is flexible and works for all the different types of businesses that provide financial advice, including small firms.

“We’re now seeking feedback on the draft Code, and want to hear from people about what they think of the proposed standards and how they will work in practice.

“We want to encourage feedback from all parties who will be affected by the Code, including anyone who is representative of the financial advice industry as well as consumers of financial advice. We will be holding a live chat session during the consultation period and people can also submit feedback via our online submission form,” says Mr Dale-Jones.

About the Code

The Code is technology-neutral and will apply to robo-advice, as well as financial advice given by people. It sets out 12 proposed standards and supporting commentary. It includes requirements to treat clients fairly and act in their interests, act with integrity, manage conflicts of interest, take steps to ensure the client understands the advice, give advice that is suitable for the client and meet standards of competence, knowledge and skill.

The Code will sit within a wider regulatory regime that will include statutory duties, disclosure requirements and licensing. These changes are being introduced through the Financial Services Legislation Amendment Bill.

Read more about the consultation and draft code: Have Your Say: Consultation on draft Code of Conduct October–November 2018

Update 2 – Consultation update and submissions published

19 July 2018

This is an update from the consultations held in March and April, with a link to the submissions received by the Financial Advice Code Working Group.

On 12 March we released a consultation document and invited submissions from anyone with an interest in the Code by the end of April.

We ran 10 roadshows in Auckland, Wellington, Christchurch, Dunedin, Balclutha, Hamilton, Tauranga and Napier, which were attended by around 800 people. More people dialled in to a webinar.

We received around 160 submissions – nearly 2000 pages. Approximately 20% of submissions were from RFAs, 16% were from AFAs, and over 20% were from firms whose services ranged from investment and insurance broking, to investment advice and wider financial planning. Over 10% were from industry bodies or dealer groups, and around 13% were from insurers or QFEs such as banks. We also received submissions from or had meetings with consumer representatives, dispute resolution schemes and education providers.

We also conducted a survey of consumers’ experiences with financial advice. We received some useful insights on what consumers expect and how a Code of Conduct could improve outcomes for consumers.

We have been collating and reading these submissions and considering the points people have made.

We are especially appreciative of the great deal of time and effort that clearly has been put into the submissions we received. We thank everyone who sent or contributed to a submission or attended a roadshow. We are still in the process of analysing the feedback and deciding how best to reflect it in the way the code standards are drafted.

Read the submissions

Next steps

We will also be meeting with some practising advisers to get some additional input.

Our next major milestone will be to develop the draft code standards. These will take account of what you have told us in your consultation submissions.

We will plan the timing of our consultation on those draft standards once the Economic Development, Science and Innovation Select Committee has reported back to Parliament on the Financial Services Legislation Amendment Bill.

Spread the word

We encourage everyone with an interest in the Code to sign up to our mailing list. If you know people who would be interested in participating in future consultations, please let them know they can sign up to our mailing list here.

Update 1 – Draft principles after the focus groups

28 November 2017

This update outlines the provisional decisions made by the Code Working Group on the principles that will guide the code’s development, after feedback from focus group consultations.

Over the last month, the Financial Advice Code Working Group has run a set of focus groups. Our objective was to test some principles to help us draft our first public consultation paper, which we will publish in early 2018.

We note that the code is being developed on the basis of draft provisions contained in the Financial Services Legislation Amendment Bill, yet to go through Parliamentary Select Committee process. Our thinking is conditional on the outcome of that.

Financial Services Legislation Amendment Bill(external link)

It is also important that we acknowledge that our focus groups have reached many but not all of our stakeholder groups. Wider public consultation — with industry, consumers and other people affected by the advice laws — is our next step.

The focus group conversations included representatives of financial adviser associations, dispute resolution schemes, the banking, insurance, funds management and broking sectors, MBIE and FMA. We questioned them on three issues set out in a brief paper:

Code Working Group - Questions for Focus Groups [PDF, 32 KB]

On the basis of their feedback, we have provisionally decided on five principles which will guide our approach to drafting our consultation paper. They are provisional because we intend to invite further feedback on them as part of the wider consultation in early 2018.

General principles

First, we asked about the general principles that will underpin our development of the code. This included our approach to retail clients, to standard setting and to dealing with the wide range of methods for delivering financial advice.

1. The code will focus on good advice outcomes for retail clients, having regard to both availability and quality of advice.

We think that retail clients should be at the heart of the code. We want them to be able to understand what the code says about the standards of advice they should receive.

The code standards will be designed to promote good conduct by each financial advice provider business and its individual financial advisers and/or nominated representatives. Irrespective of a business’ structure and approach, the code will require arrangements designed to deliver good advice outcomes. This means advice will need to meet the standards set by the code whether it is given by financial advisers, nominated representatives, or directly by providers, for example as computer-generated advice.

We emphasise the “advice” outcome to distinguish it from the “ultimate” financial outcome of a particular product or plan. The code is about achieving a good outcome from the advice process, not necessarily obtaining a favourable return.

A key purpose of the new advice legislation is to ensure the availability and quality of advice. In developing the standards, we will consider good advice outcomes with regard to both these goals.

2. The code will be drafted on the assumption that most retail clients have basic knowledge but not the financial advice provider’s expert understanding.

We know that different clients have different levels of financial knowledge. However, the code will be written on the assumption that the client has basic knowledge — not expert understanding — of financial matters. Therefore the provider’s service must be structured to take that asymmetry of expertise into account when delivering a good advice outcome.

That expertise comes from combined competence, knowledge and skills of the financial advice provider business (including its management, support people and resources) and of its individual financial advisers and/or nominated representatives.

3. The code will be drafted in a clear, concise and effective manner, with a principles-based approach that allows for flexible application to a wide range of situations.

We need to strike a balance between generic, high-level standards and those that are sufficiently detailed to be implementable and pragmatic.

As far as practicable, we will draft code standards broadly so they apply to multiple business models and delivery mechanisms.

4. The code will be drafted to promote good advice outcomes irrespective of how the advice is delivered. It will allow for varying degrees of reliance on business process.

The code will be agnostic as to different approaches of delivering advice or structuring advice businesses.

Under the Bill, the code is able to distinguish between different types of financial advice, financial advice products, or other circumstances. It is also required to provide for the way(s) in which a financial advice provider or financial adviser may demonstrate the provider’s or adviser’s competence, knowledge and skills. We will use these tools to promote good advice outcomes that are consistent across different business structures.

Particular competence, knowledge and skills

The focus group discussions considered how the code should differentiate between types of financial advice, for the purpose of providing standards for particular competence, knowledge and skills.

No focus group suggested a “silver bullet” solution. It was broadly acknowledged that the code will apply to a vast array of advice situations, and that inevitably — and as envisaged by the Bill — there will need to be more than one particular competence, knowledge and skills requirement. A range of factors will affect the degree of discretion and expertise exercised by the individual adviser: for example the business model, advice scope, client risk, and nature of product.

We consider that “competence, knowledge and skills” refers to the composite expertise of the business and the adviser. The setting of a standard, and the articulation of ways in which the standard is demonstrated, must necessarily consider all the factors at play in the business to provide the retail client with appropriate expertise.

In the case of financial advice that includes designing an investment plan, focus groups were asked specifically whether the current Code of Professional Conduct for Authorised Financial Advisers was a useful benchmark. Although our interest was primarily in relation to competence, in general the focus groups responded in respect of all current minimum standards (not only those relating to competence). No significant issues were raised about the appropriateness of the current standards in that context of “full” investment planning.

Code of Professional Conduct for Authorised Financial Advisers [PDF 886KB](external link)

We continue to work on our approach to competence, knowledge and skills, and will consult on it further in our first consultation paper.

Other minimum standards

Lastly, we asked focus groups about whether different standards should apply in respect of different types of financial advice, financial advice products, or other circumstances. There was broad discussion about a number of factors. Several suggestions were made to us about other codes we should look to as examples, in particular codes that use explanatory material and examples to explain their standards.

On one point, ethical behaviour, there was resounding agreement. This is embodied in our fifth provisional high-level principle to guide our further work on the code:

5. The code’s ethical behaviour standards will be consistent for all advice situations, and are relevant to the advice business, its officers and advisers.

Your involvement

Our thanks to those who have participated in this round of focus groups. We are encouraging everyone to sign up to our mailing list(external link) and to participate in our consultation process in 2018.

Last updated: 06 March 2019