Advisers operating under the code of conduct in New Zealand are required to put their clients’ interests first – but are not subject to the broader standard, imposed in some other countries, of acting in the clients’ best interests.

The latest recommendations from the Ministry of Business, Innovation and Employment indicate that the “client first” standard is set to be applied across all financial advisers under the new Financial Advisers Act regime.

But it has been argued, including by John Berry here, that the industry should consider changing the standard to “best interest,” to hold advisers to the same level as lawyers, dentists, fund managers and real estate agents.

David Ireland, chairman of the Code Committee, said there had always been a “vocal minority” who thought advisers should have to operate under the best interest standard, or have a fiduciary duty to a client.

He said opting for “client first” in the code instead was not a “motherhood and apple pie” sentiment but instead a solution that could be applied to a wide range of advisers and advice processes.

“It’s a practical standard we thought advisers from every walk of life could relate to in any given advice scenario.”

That would mean considering what motivated them to give the advice they provided to a client – whether that was the interests of the client, themselves or a third party, he said. “We see it as a more pragmatic standard to apply in practice.”

He said it had worked well for AFAs for the past five or six years.  It could be a challenge sometimes to demonstrate what motivated a particular piece of advice but if advisers could say they placed the interests of the client above all else, that was easy to understand, he said.

“It’s far more challenging to think 'how can I demonstrate my advice as in the best interest of the client, in terms of an extreme, absolute standard',” Ireland said.

Financial law expert Sue Brown, who was part of the committee that developed the initial code of conduct, said there was a feeling that technical terms such as fiduciary duty were not helpful to advisers.

“In the early days some were still struggling to understand how they could say they were acting in the client’s best interests and still charge a fee.”

She said "client first" was seen as more accessible. “It boils down to the same thing, but it’s how you describe them. You need to ask what’s right for the client rather than what’s right for you. Sometimes you have to do something that’s not good for you but is good for your client.”

Murray Weatherston, of SiFA, said the client best interest standard would be unworkable in practice. “It’s a standard that’s impossible to meet. How would you enforce it?”

Ireland said those who wanted to offer a view on which standard was better would get a chance later this year as part of the FAA review process. “When the exposure draft comes out, that’s where that should be played out.”