CODE COMMITTEE FOR FINANCIAL ADVISERS
5 December 2013
Revised Code of Conduct submitted to FMA See news release
19 – 26 August
Public meetings on Code Consultation See venues and times
9 August 2013
Code of Conduct consultation begins See news release
31 July 2013
Chair for Financial Adviser Code Committee re-elected See news release
27 August 2010
Table summarising major submission points raised on the second draft of the Code and the Committee's responses to those issues
|Continuing Professional Training Standards|
|Code Standard 16 (now CS 17) - Professional development plan requirement|
|Should CS 16 and CS 17 be combined?||The two continuing professional training standards cover two distinct concepts. One is the obligation to maintain a professional development plan, the other is the detail of the training required. The Committee is satisfied that it is appropriate to keep the two standards separate. Minor adjustments in terminology across the two Standards have been included, primarily in respect of the use of the word 'development' where appropriate, as opposed to 'training'. Given the statutory reference to 'continuing professional training', the Committee was compelled to use that term, despite the more appropriate term used throughout the financial advisory industry of 'continuing professional development'.|
|It has been suggested that the word 'planned' be inserted into CS 16(c) to read: '...where available, include details of courses, seminars, workshops and any other training or professional development planned to be undertaken'||The Committee agreed with this suggestion.|
|Code Standard 17 (now CS 18) - Undertaking continuing professional training|
|Should the definitions of 'professional body' and 'structured training' be reconsidered in relation to CS 17? In order for an organisation to qualify as a 'professional body', it was suggested that more rigorous requirements be imposed.||For the purposes of Code Standard 18, the only requirement the Committee considered to be of relevance was insistence by the relevant body that its members comply with a CPD programme. The Committee considered the approach taken was appropriate.|
|Should the requirement to keep records under CS 17 instead be expressed in a generic fashion in order to avoid capturing inadvertent administrative breaches that are of no consequence?||The Committee agreed that it was appropriate to provide more flexibility in the manner in which records needed to be kept under Code Standard 18, in order to avoid the prospect of non-substantive technical breaches occurring. The key principle for AFAs to abide by is that records must be in the form suitable for demonstrating compliance with the Code Standard, and this is now reflected in Code Standard 18.|
|It was suggested that CS 17 should not impose continuing education requirements for services an AFA intends to provide. Rather, it should only apply on commencing to provide those services.||Code Standard 18 allows AFAs the flexibility to undertake continuing professional development in relation to services the AFA either currently provides, or intends to provide. It would be unduly restrictive if training undertaken by AFAs were only able to count towards satisfying the requirements of Code Standard 18 if their training related to services the AFA was currently providing. The Committee felt it was more appropriate to encourage AFAs to undertake training in relation to services they intend to provide, without that training needing to be undertaken in addition to the minimum requirements of Code Standard 18.|
|Competence Alternatives Schedule|
|Competence Alternative Schedule: General Comments|
|Should Chartered Secretaries receive relief under the Code?||Given the focus of the Act's restrictions on financial adviser services provided to retail clients, the Committee did not consider it appropriate to grant specific recognition to chartered secretaries. Whilst strong submissions were made on behalf of that designation, and the Committee had no doubt as to the quality of the requirements for becoming a chartered secretary, the Committee was not satisfied there was a sufficient correlation between those requirements, and the skill set necessary to provide personalised services for retail clients, to warrant relief.|
|Should the Code cater for overseas qualifications, other than simply relying on mutual recognition or exemption powers? Should a body such as ETITO be given express authority to recognise overseas qualifications for the purpose of recognition for authorisation purposes?||The Committee had considerable sympathy for those arguing that overseas qualifications should be given some recognition under the Code. In many cases, the Committee accepts that overseas qualifications will have been attained at a much higher level than the Level 5 National Certificate. However, the diplomas already recognised in the Competence Alternatives Schedule, and the Level 5 National Certificate Unit Standards, are very New Zealand specific. The Committee was not confident any overseas qualifications would provide a sufficient grounding in New Zealand's tax system, superannuation and KiwiSaver arrangements and general regulatory environment impacting on financial products to warrant recognition being given in the Code against any of the Standard Sets. Providing recognition would risk compromising the integrity of the standards imposed as a consequence. However, the Committee understands that there are mutual recognition options available and ETITO itself is able to directly recognise relevant standards set by international counterparts (such as the IBSA in Australia).
The Committee understands that ETITO is currently working towards identifying appropriate mechanisms for some recognition being given to qualifications from other jurisdictions. These mechanisms would enable those qualifications to at least be recognised in part against components of the Unit Standards comprising the Level 5 National Certificate. However, any changes are unlikely to be effected prior to 1 July 2011.
|Should there be an avenue for appeal where particular qualifications have been obtained overseas to avoid the need for additional study and the associated cost in time and money?||Providing an avenue for appeal is beyond the powers of the Committee to include in the Code. The option available for applicants is to seek an exemption from the Securities Commission.|
|Is there to be any relief for advisers part way through recognised alternative qualifications?||The Committee was unable to identify a suitably robust approach to recognising achievements of those part way through attaining any of the alternative qualifications specified. Those who are part way through may be able to seek exemption relief from the Securities Commission, where the components of the qualification that they have already attained are sufficient to cover all of the material specified in the relevant Standard Set. It was not considered appropriate to adopt a more granular approach to recognising specific papers forming part of various qualifications, beyond the limited extent provided for in the alternative qualifications and designations set out in the Competence Alternatives Schedule in relation to Standard Set E.|
|Should the Code allow for a class of provisional AFAs to cover those in training who can provide retail personalised adviser services provided they have: attained Unit Set Standards A and B, are employees or nominated representatives of QFEs, are supervised/mentored by an AFA, and who attain Unit Standard Sets C and D within one year of attaining their professional authorisation?||The Committee considered this issue at length, both within the Committee itself and with various external stakeholders who raised the issue as being of concern to them. The Committee also considered the limitations placed on the scope of activities that will constitute 'financial advice' when the Act was finalised at the end of June. On balance, it was felt that these limitations provide a sufficient opportunity for apprentice advisers to operate without needing a separate classification. Regardless, if a 'provisional' class of AFA were created, the Committee considered that extensive disclosures would need to be imposed in order to ensure the objectives of the Act were not undermined through such a classification. It seemed likely that the extent of those disclosures would render the classification unattractive. The Committee determined on balance not to pursue a 'provisional' classification in the Code, at least in the initial version.
The Committee understands that ETITO will shortly be issuing guidelines as to how new advisers entering the industry after June 2011 may satisfy the requirement to provide valid evidence to meet the standards in Standard Set C. The Committee notes that from 1 July 2011, individuals who have yet to attain authorisation will be unable to make a recommendation or give an opinion to a retail client in relation to acquiring or disposing of a category 1 product, although they will be able to provide guidance and pass on information and financial advice from an AFA.
|Should the Competence Alternatives Schedule instead break down the currently recognised qualifications into the papers relevant to each Standard Set? This would allow for more targeted relief, and give recognition for some elements of alternative education paths which otherwise count for nothing under the Code.||The Committee considered that that integrity of the recognition approach taken would be compromised by adopting the granular approach suggested. The Standard Sets comprising the Level 5 National Certificate were largely viewed as a package, rendering such a granular approach inappropriate.|
|A number of submitters have expressed concern or disappointment with the fact that experience is not taken into account||The Committee was unable to identify a reliable basis for recognising past experience without compromising the integrity of the approach taken. The Committee's expectation is that those with experience who are competent in all that they do and with a good knowledge base, who do not possess qualifications or designations that provide them with full recognition relief under the Competence Alternatives Schedule, should be well placed to pass the relevant Units in the Level 5 National Certificate. However, the Code itself cannot assume this will be the case.|
|Should CFPs without the Massey or Waikato Diploma receive the same relief as CFPs with the Diploma?||All CFPs have been granted relief against Standard Set A and Standard Set C, recognising the quality of the CFP programme. Standard Set D, however, is a knowledge based Standard Set, for which the Committee considered (on advice) that possession of the CFP designation alone was insufficient to warrant relief.|
|Is the inclusion of the alternative qualification: 'Certificate in Financial Services from Adviserlink Learning Limited' providing AFAs with the opportunity for a short cut in terms of compliance?||The Committee was comfortable with the appropriateness of the limited relief provided for the Adviserlink Certificate.|
|Can the 'eligibility sunset' mechanism be further defined and explained?||The eligibility sunset mechanism has again been clarified. The meaning of the term has now been spelled out as a final bullet point to Code Standard 16 and cross referenced in the heading to the Competence Alternatives Schedule. The overall impact of the eligibility sunset mechanism has not changed over the course of the various drafts of the Code. On each occasion, the mechanism has required the qualification, paper or designation in question to have been fully attained at the time the person seeks authorisation, although the Committee notes that a number of submitters still misinterpret the mechanism as contemplated in the first draft of the Code. To provide further clarity, in the final draft of the Code, the sunset date has been specified as 1 January 2014 in the body of the Code itself, as opposed to referring to an unspecified date three years in the future.|
|What proof is required in relation to attainment of the alternative qualifications and designations listed in the competence alternatives schedule? Should 'attainment' be further defined?||This is an administrative query, that will be handled at the time a person applies for authorisation. The Committee's understanding is that some form of documentary evidence will need to be uploaded in order to verify an applicant's credentials.|
|Unit Standard Set A|
|Should those who have received overseas qualifications be granted relief from Standard Set A?||Standard Set A is concerned with the New Zealand financial services and advice environment. Recognition of overseas qualifications would be inappropriate.|
|Should those who are members of the Fellow of New Zealand Society of Actuaries (FNZSA) be granted relief from Standard Set A?||The Committee anticipates that most fellows of the New Zealand Society of Actuaries will possess a qualification that will enable them to gain relief from Standard Set A regardless. The Committee could see no basis for recognising the designation on its own, notwithstanding the high regard in which that designation is held.|
|Should FINSIA and/or Kaplan qualifications be recognised for relief under Standard Set A?||Please refer to our earlier responses in relation to overseas qualifications.|
|Should any/all of the following papers be included for relief under Standard Set A: 405N The New Zealand Stockmarkets, 508N Securities Law, Stock Exchange and Market Regulation in New Zealand and FIN229 Futures and Options Markets and Trading?||NZFMA accredited individuals, NZX Advisors, NZX Associate Advisors and holders of the NZSE diploma or NZX diploma already get recognition against Standard Set A. Recognition of the specified set of papers was not considered appropriate given the broad coverage of Standard Set A.|
|Unit Standard Set B|
|Should CLUs and CFPs who are IFA members receive relief from Standard Set B?||The Committee did not consider it appropriate to grant relief for any person against Standard Set B. The Committee sees it as an essential base minimum standard for anyone holding an AFA designation to have adequately demonstrated knowledge of both the Code and relevant consumer protection legislation.|
|Does Standard Set B set a standard for compliance by AFAs that is too high or outside the Code Committee's powers in relation to the equivalent standards of other professions?||The Committee was comfortable that it was entirely appropriate to assist on all AFAs having a minimum acceptable standard of knowledge of the Code of Professional Conduct under which they must operate, as well as relevant consumer protection legislation. To do otherwise would have been to leave a significant gap in the consumer protection afforded by the Code, and risked undermining the objective of encouraging consumer confidence in the professionalism and integrity of financial advisers.|
|Unit Standard Set C|
|Should AFPs and ALUs, who have a minimum of 10 years industry experience, who have completed the Graduate Diploma in Business Studies (Personal Financial Planning or Personal Risk Management) and the two year mentoring period, subject to the eligibility sunset, be exempt from Standard Set C?||The Committee did not consider any level of attainment below CFP or CLU status should be regarded as sufficient to grant recognition against Standard Set C.|
|Should those who have gone through the process required to become CFPs receive relief from Standard Set C, even if they chose not to pursue the designation?||The Committee did not see that there was any reliable basis for recognising the achievements of those who had not actually attained a designation specified in the Competence Alternatives Schedule, be it CFP or otherwise. The only reliable basis for being confident that an individual has gone through the processes required with sufficient rigour to be able to attain the relevant designation is for the designation to have actually been attained.|
|Should those who are members of the Fellow of New Zealand Society of Actuaries (FNZSA) be granted relief from Standard Set C?||The Committee was not satisfied that there was anything inherent in the requirements to attain FNZSA status to provide confidence that every holder of that designation would have gone through a process that was appropriate to warrant recognition against this Standard Set.|
|Should Chartered Secretaries receive relief under Standard Set C?||Given the focus of the Act's restrictions on financial adviser services provided to retail clients, the Committee did not consider it appropriate to grant specific recognition to chartered secretaries. Whilst strong submissions were made on behalf of that designation, and the Committee had no doubt as to the quality of the requirements for becoming a chartered secretary, the Committee was not satisfied there was a sufficient correlation between those requirements and the skill set necessary to provide personalised services for retail clients to warrant relief.|
|Should the requirements of Standard Set C be reduced in order to make its attainment available to a wider range of advisers?||The Committee understands that ETITO will shortly be issuing guidelines as to how non-client-facing individuals may satisfy the requirement to provide valid evidence to meet the standards in Standard Set C.|
|Can the requirement to submit three client files to evaluation under Standard Set C be clarified in relation to how this is to occur in relation to corporate structures which utilise a paraplanning unit where paraplanners have no contact with the client?||See previous response.|
|Should relief for NZX Advisors under Standard Set C be increased beyond those who hold the NZX Diploma?||The NZX diploma is an academic qualification. Standard Set C involves practical demonstration of competence to deliver financial adviser services. The Committee did not consider it would be appropriate to extend recognition to include holders of the qualification alone, without the relevant designation.|
|Should those who have completed the mortgage broking course provided by Adviserlink, Sovereign, Mike Pero and Allied Kiwi, and who have more than two years of practical experience be granted relief from Standard Set C?||The Committee did not consider that relief on this basis could be warranted without compromising the integrity of the minimum standard specified.|
|Should those who have completed the Diploma in Personal Financial Planning (Waikato or Massey) be granted relief under Standard Set C?||The Diploma is an academic qualification. Standard Set C involves practical demonstration of competence to deliver financial adviser services. The Committee did not consider it would be appropriate to extend recognition to include holders of the qualification alone, without the relevant designation.|
|Can those individuals engaged by financial service providers who are solely concerned with workplace savings arrangements be given relief against Standard Set Set?
The concern was raised that such individuals may be unable to build up the client file evidence sufficient to enable them to satisfy Standard Set C.
|The mechanics of attaining Standard Set C is something that is beyond the powers of the Code Committee. As mentioned earlier in this issues paper, the Committee understands that ETITO will make available guidance to support such individuals to identify appropriate sources of evidence.
Given the specific limited exemption given under the Act, the Committee did not consider it appropriate to provide targeted relief in relation to specific categories of financial product. If relief is required as a matter of practice, the appropriate mechanism in the Act would be for the applicant organisation to seek an exemption from the Securities Commission.