Strategi has issued a white paper on care, diligence and skill. The Financial Advisers Act (FAA) requires that every adviser “exercises the care, diligence and skill that a reasonable financial adviser would exercise in the same circumstances”.

But Strategi’s managing director, David Greenslade, said many advisers, especially RFAs, were not aware of what the standard was that they were required to meet.

Even AFAs could be caught out if they had not kept up with changing regulations, the new version of the Code of Professional Conduct for AFAs, and FMA guidance notes, he said. "These concepts are not static. Consumer expectations are constantly rising and this causes legislators and regulators to reacts. New laws and regulations come into play, the Code gets updated and FMA issues additional guidance notes. Add to this outcomes from dispute resolution service determinations, court judgements... what this means is that the expectations around interpretations of the words care, diligence and skill, and how they are now applied ... are potentially different to what they were when the FAA was drafted in 2008."

It could come as a shock to some advisers if they were held to account, he said.

“In a court, it is likely a complainant would argue that the benchmark is the practice of a highly skilled and experienced AFA and compare those practices to what another reasonable professional would do.”

Strategi Client Services Manager David Rey agreed: “RFAs are not subject to the same oversight but when clients take advisers to court, judges will look at the FAA. You have a duty of care and need to demonstrate the advice was suitable… the judge will say ‘what would an AFA practicing according to the professional standard have done?’”

Strategi suggested RFA and QFE advisers should follow the Code of Professional Conduct for AFAs.

If they did not, they should document why they did not think it applied to their businesses.

Rey said there was likely to be increased scrutiny of advisers, particularly of the RFAs who were not already closely regulated by the FMA.

Strategi said it expected the Level Five qualification could become compulsory for all advisers, possibly when the FAA is reviewed in 2016, and RFAs should start working towards it now.

Strategi is developing a "Closing the Gaps" module to bring all advisers who have completed part of all of the existing Level Five qualification up to the standard of the new qualification. It is also offering an education mapping service to help advisers work out what qualifications they have or need, develop a professional development plan, and meet the FAA care, diligence and skill requirements.