The working group said it was taking a client-centric approach and wanted to provide practical minimum standards to create good client outcomes.

Competence requirements have been one of the key areas on which advisers have been waiting for more information.

The working group is suggesting that, for product advice, advisers should work with the competence, knowledge and skill of someone who had passed the New Zealand Certificate in Financial Services (Level 5).

“Level 5 is the reference point: the Financial Advice Provider must decide how it achieves that level in aggregate – for example by using an if-not-why-not approach. Our focus is on the outcome not the input: the client experience must be equivalent to that given by a person holding Level 5, not that each person giving the advice necessarily has that qualification,” the group said in its consultation document.

This could capture many RFAs who offer insurance and mortgage advice.

Financial planners will be expected to operate at the level of an individual who has attained a bachelor’s degree majoring in financial planning, accountancy, business, commerce, economics, finance, or management, and a qualification in financial planning and advice process.

“Again, an if-not-why-not approach may be used to demonstrate how the outcome is equivalent.  In both cases, persons who qualified under the previous regime as AFAs would be recognised as meeting the minimum standard. We ask how RFA experience could be recognised in a measurable, quantifiable way.”
The working group said measuring good advice outcomes was difficult because they were not easily quantifiable.

“With investment products, the lowest fees or highest expected return may not be appropriate when accounting for a client’s individual circumstances or preferences. With insurance products, the lowest premium or highest level of cover may not be appropriate if the policy has some significant exclusions.”

Working group chair Angus Dale-Jones urged stakeholders to respond to the proposals.

“The standards we set will affect both those who give financial advice and those who receive it, so we want to hear from as many people as possible.

“The new code of conduct will set standards of ethical behaviour, client care and competence that will apply to a wide range people who give financial advice – from quick recommendations through to detailed investment planning. It will cover the kinds of financial advice that many New Zealanders get, such as advice on mortgages, insurance, term deposits, KiwiSaver, and other investments.

“It will also cover computer-generated financial advice – sometimes called ‘roboadvice’. We want to make sure that no matter how customers get their financial advice in future they get a good outcome.”

Commerce Minister Kris Faafoi welcomed the consultation.

“Consumers trust the people and institutions that provide financial advice, so it is important that financial advice is held to appropriate standards,” he said.

“This is one of a range of significant changes to the regulation of financial advice contained in the Financial Services Legislation Amendment Bill, which is currently before select committee.”

Once the new code of conduct has been approved, businesses will have about nine months to get a transitional licence. Businesses will then have two years to become fully licensed.