The Code Committee would inevitably include more consumer advocates as well as industry representatives under the proposed shake-up to the financial advisory regime, according to David Boyle, Commission for Financial Capability (CFFC) head of investor education.
Boyle said with the Code Committee’s ambit set to expand under the Financial Advisers Act (FAA) reform proposals released earlier this month, its structure and membership would have to be reviewed.
“The Code Committee would need more diversity than it currently has, including a greater representation for the consumer point of view,” he said.
Currently, the Code Committee, responsible for producing and updating the Code of Professional Conduct for authorised financial advisers (AFAs), boasts eight members, mostly drawn from the local industry. However, the Committee, chaired by Kensington Swan partner, David Ireland, includes a couple of outsiders, namely, Jon Duffy, Trade Me head of trust and safety, and Dimity Kingsford-Smith, law professor at the University of New South Wales.
Duffy is also a board member of Consumer NZ while Kingsford-Smith holds various positions on ethics committees for the Australian financial planning industry.
Under the FAA reform proposals, the Code Committee would set conduct and competence standards for the entire advisory industry rather than the small subset of about 1,840 AFAs. The FAA review report put the potential size of the NZ advisory industry at about 28,000 with the newly-defined ‘financial advisers’ expected to number about 3,000-5,000 and ‘agents’ making up the difference.
Both ‘financial advisers’ and ‘agents’ would have to comply with the “consumer first” obligation proposed by the government.
While the Code Committee today sets “minimum” standards for the AFA community, the FAA review recommends extending its powers to prescribe “in more detail how to comply with the legislative conduct and competence obligations”.
According to the FAA review paper, those details include:
- standards of conduct, client care, competence, knowledge and skill, and continuing professional development requirements.
- prescribed courses which are deemed to comply with the standards of competence, knowledge and skill.
However, the original criteria for Code Committee membership, which requires candidates are “knowledgeable, experienced and competent in relation to consumer affairs and the financial adviser industry” remains unchanged in the FAA reform proposals.
Rob Everett, Financial Markets Authority (FMA) chief, said the regulator has left the Code Committee membership as is for now, reappointing both Ireland and Gary Young, head of the Insurance Brokers Association of NZ, for another year early in July.
“[The FAA proposals] will change the nature of the Code Committee,” Everett said. “But we decided to keep the current people and change later if necessary once the new law is in place.”
Both the “membership and proceedings of the Code Committee” would be “reconsidered” in a Cabinet paper due this September, the FAA review says.
Boyle said the Committee’s power to set competency and education standards for the complete set of financial advisers would likely cause the most angst for the industry.
He said while some advisers may have preferred the standards prescribed in black-letter law, devolving those responsibilities to the Committee made sense.
“If you hardwire those standards in the legislation it’s much less flexible and harder to change them if you need to,” Boyle said.
In a paper released last week, David Greenslade, head of adviser education provider, Strategi, said the current minimum education standard set by the Code would probably also set the baseline once the new regime is in place.
“The latest version of the Code stipulates that the New Zealand Certificate in Financial Services Level 5 (or specified alternative qualifications) is the minimum standard required for AFAs,” Greenslade says in the note. “Practically, this means it is also likely to be the starting point for setting the minimum standard for all financial advisers and agents.”
He said “we are pretty confident we are on the button with our recommendations” following a review of the Strategi report by Code Committee chair, Ireland.
The paper also recommends that existing AFAs retain their designation in the interim if they wish to continue operating under the proposed regime.
“If you cancel your AFA status, then you may need to jump through additional hoops whereas paying to renew your authorisation should help the transition to be as painless as possible,” the Strategi report says.