Financial Advice Code approved and released

The Minister of Commerce and Consumer Affairs has approved the Code of Professional Conduct for Financial Advice Services (Code) submitted to them by the Financial Advice Code Working Group (CWG).

The Code, as well as the summary of submissions and impact analysis released by the CWG, can be found here, while our discussion of the previous draft of the Code and the related consultation paper can be found here.

Who needs to read it?  Why?

All financial advisers, and any business which provides financial advice. The Code will provide much of the detail around the regulation of financial advice under the Financial Services Legislation Amendment Act 2019 (Act), which passed into law last month but is yet to come fully into force.

What does it cover?

The Code provides for minimum standards of professional conduct when regulated financial advice is given to retail investors. The standards are:

Part 1: Ethical Behaviour, Conduct, and Client Care

1. Treat clients fairly

2. Act with integrity

3. Give financial advice that is suitable

4. Ensure that the client understands the financial advice

5. Protect client information

Part 2: Competence, Knowledge, and Skill

6. Have general competence, knowledge, and skill

7. Have particular competence, knowledge, and skill for designing an investment plan

8. Have particular competence, knowledge, and skill for product advice

9. Keep competence, knowledge, and skill up-to-date

Each standard is accompanied by a description of the ways that it can be demonstrated, as well as commentary to explain it.

The released Code is substantially similar to the consultation draft. The notable changes are that:

  • the number of standards has been reduced from 12 to 9, with:
    • the old standards 3 (managing conflicts of interest) and 8 (not bringing the financial advice industry into disrepute) being rolled into the new standard 2 (acting with integrity); and
    • the old standard 7 (providing arrangements for resolving client complaints) being removed;
  • the requirement to act in the client’s best interests that was a component of the old standard 1 (treating clients fairly and acting in their interests) has been removed, although the need to treat clients fairly remains; and
  • the old standard 12 (having particular competence, knowledge, and skill for other types of financial advice), which has become the new standard 8, has been modified to refer to “product advice” instead.

Our view

The Code has retained the sensible approach of its earlier draft, aiming to influence the market through short and higher-level principles rather than a prescriptive rulebook. Similarly, it is framed in the positive, emphasising good conduct by promoting it rather than forbidding poor conduct.

What next

The Code will not come into force for at least nine more months. Existing advisers will then have two further years to move into compliance with the new standards.

If you have any questions in relation to the Code or are considering how these changes may affect your business, please contact one of our experts.

Who can help