Key changes to the Code of Professional Conduct
Code Standard 3
- Code Standard 3 has changed to clarify that providing a discretionary investment management service does not preclude an AFA from asserting or implying their independence, or that the services they provide are independent.
Code Standard 8
- The revised Code has new requirements under Code Standard 8.
- It requires AFAs to agree on the nature and scope of the financial adviser services with clients at the outset, and clarify any limitations and impact of these services with clients.
- The old Code Standard 10 (Providing class services for retail clients) wording is now incorporated into new Code Standard 8.
Code Standard 9
- “Suitability” is now addressed under Code Standard 9 but without the prescriptive requirements. This is designed to allow AFAs to take a principle-based approach to determine suitability, taking into account the agreed nature and scope of the service provided.
Code Standard 16
- If you are planning to become an AFA, the standard of minimum competence, knowledge and skills has changed. AFAs are now required to attain the components of the New Zealand Certificate in Financial Services (Level 5) relevant to the services they wish to provide.
- As a transition measure, the old National Certificate in Financial Services (Financial Advice) (Level 5) will continue to be recognised for authorisations up until 1 January 2019. (See details under “Transition”).
Schedules
- The Competence Alternatives Schedule, which sets out acceptable alternative qualifications, has been revised to reflect the new default minimum standard in Code Standard 16.
- The Definitions Schedule has been revised to reflect the changes to Code Standard 16 and the Competence Alternatives Schedule and the end of the transition period for the Financial Markets Conduct Act 2013 on 30 November 2016.
What do you need to do now?
Existing AFAs
We understand it may take time to review your business practices against the new Code requirements and to incorporate any necessary changes. Nevertheless, we expect these to be updated by 1 March 2017, particularly in the areas outlined below.
Changes to Code Standard 16 will not affect you as long as you have had no break in your AFA authorisation. You must also be able to demonstrate compliance with the CPD obligations under the Code over the course of your AFA authorisation.
Please note that Code Standard 14 continues to require you to have the competency, knowledge and skills to provide the relevant financial adviser service(s).
Professional Development Plan
Ensure your professional development plan for 2017 and beyond incorporates any actions required due to the changes to Code Standard 16, taking into account the requirements under Code Standard 17(d), including identifying any areas for improvement or gaps in your competence, knowledge and skills.
Adviser Business Statement (ABS)
Because of the changes in Code Standards 8 and 9, your client engagement documentation may change.
- Think, for example, how you reach an agreement with your clients about the nature and scope of the services to be provided.
- Review and update your ABS, specifically around how you will comply with Code Standards 8 and 9.
- Reflect any changes to your processes in Part 2 of your ABS.
Advice and record keeping
When you next provide services to a client, align your processes with the revised Code Standards of client care and keep relevant records as required under Code Standard 12.
Working towards becoming an AFA
If you are planning to become an AFA, or are working towards it currently, we encourage you to:
- familiarise yourself with Code Standard 16 requirements as well as the Code’s Competence Alternatives Schedule; and
- understand how the Code changes may impact you.
Transition
Under the new Code, there is a transition provision for AFAs seeking to become authorised for the first time. It allows the old minimum standard (the National Certificate in Financial Services (Financial Advice) (Level 5)) to continue to be recognised for authorisations that come into effect before 1 January 2019. Please refer to Code Standard 16 and the Competence Alternatives Schedule for more details.
Supporting AFAs
We want to ensure that the new Code supports the professionalism of financial advisers and helps you to deliver the best client outcomes.
We will continue to engage with AFAs and professional associations to make sure we are aware of any issues. If you have any issues or questions about the revised Code, we would welcome your feedback.
Please call us on 0800 434 567 or email us for more information.
About the Code Committee
The Code Committee developed the Code of Professional Conduct for Authorised Financial Advisers. It was established under the Financial Advisers Act 2008 and is responsible for reviewing the Code from time to time and recommending such changes as it thinks fit.
AFAs are required to meet the minimum standards of professional conduct set out in the Code and all applicable laws, whether or not referred to in the Code.
