Feature

The group developing a new code of conduct for financial advisers has released a draft – and it will mean big changes for insurance brokers.

The code will guide everyone who gives financial advice under the new regime. It is expected to be signed off by the Commerce Minister early in the new year. The new financial advice rules will take effect about nine months later.

Here are five changes the draft code proposes for insurance brokers.

1. Qualifications

The draft code has backed away from the suggestion that a degree could be a requirement for the financial advice sector for now.

But it has settled on the New Zealand Certificate in Financial Services (Level 5) as the base level for the industry.

That means some brokers currently working as registered financial advisers without any formal qualifications may have to go back to study.

There will be an option to have prior learning recognised, but the code working group has warned that could be a more onerous process than simply getting the qualification.

People who continue under the new regime as nominated representatives working under a financial advice provider, rather than financial advisers, will be able to skip this qualification if the advice they give is seen to be at the standard of someone with that qualification.

That will only be able to be achieved if the financial advice provider’s systems and processes are stringent enough to backfill any gaps in the representatives’ learning and experience. The provider will also have to give proof of how it is measuring this during the licensing process.

2. CPD

Authorised financial advisers currently have a requirement to undertake continuing professional development, but there is no such requirement for RFAs.

That’s set to change if the draft code is adopted in its current form.

The code includes a requirement that individuals complete learning activities design ensure they maintain the competence, knowledge and skill to provide the financial advice they give, and to the extent relevant to their role, an up-to-date understanding of the regulatory framework for financial advice in New Zealand.

The working group isn’t proposing a minimum number of hours at this stage, instead pointing to the need to focus on the outcomes of the CPD work. But advisers have flagged this lack of detail as a concern.

3. Manage conflicts of interest

This is already dealt with in the Financial Services Legislation Amendment Bill, but the code makes it clear. A person who gives financial advice must have arrangements in place to manage conflicts of interest.

Where practicable, they are to be avoided, otherwise they must be identified and controlled, then adequately disclosed to clients.

4. Protect client information

It won’t be enough to hope for the best when it comes to holding information about your clients.

The draft code includes a standard requiring advisers to take reasonable steps to protect client information against loss and unauthorised access, use, modification, or disclosure.

The group said that would include but not be limited to work papers and records, and the financial advice given to clients.

“Physical and electronic security measures should be maintained so that only authorised personnel of the financial advice provider have access to client information. Client information should only be held for as long as it is required for the purposes of the engagement, or to comply with a regulatory requirement. The client information then should be returned to the relevant client or disposed of securely.”

5. Give financial advice that’s suitable – and prove it

Any advice that brokers give to clients will have to be able to be backed up with an argument as to why it was appropriate.

The draft code says that “reasonable grounds” for giving financial advice will mean 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 and each financial advice product covered by the financial advice.

“In some situations, an in-depth analysis of the client’s circumstances may be required. In others, it may be reasonable to conclude that the financial advice is suitable where the client’s circumstances include particular characteristics. 

“If the nature and scope of the financial advice includes an actual or implied comparison between two or more financial advice products, the financial advice should be based on an assessment and comparison of each product. This includes, for example, where an existing product held by the client is being replaced by a new product which provides similar features or benefits.”

Consultation on the draft code finished in early November.



December 2018

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