It says the paper lacks a principles-based code of ethics; it considers the interpretation of independence is "unhelpful" and the proposed standards "intrude into determining the business model of advisers".

It is little surprise the institute is pushing for a "complete principle-based code of ethics and practice standards" as that sits with its market positioning.

"What is included in the proposed standards is only a partial code of ethics, with a focus on what might be thought of as "areas of concern", rather than covering the broad principles."

"An expanded set of principles that is better aligned with international standards would enable a less prescriptive approach in the proposed standards."

"The draft Code appears to have been drawn up to apply to investment advisers and financial planners who also provide investment advice.  Since anyone providing a ‘financial planner service' is required to become AFA, many risk insurance advisers will be AFA and covered by the Code. 

"Many of the provisions don't work for insurance advisers.  We suspect they won't work for advisers."

The institute also has "considerable difficulty" with the section on independence. It says the proposal is "unhelpful and based upon a restrictive interpretation, especially in relation to approved product lists and platforms."

" We recommend an alternative approach that places greater emphasis on disclosure of potential conflicts of interest, including remuneration."

It says that the proposed standards go "beyond what would be expected in a code of behaviour and intrude into determining the business model of advisers."

 Examples include the proposed standards about suitability and the suggestion that commission should be banned. 

"We consider that banning commission may well be beyond the scope of what is listed in the Financial Advisers Act as the requirements for the Code."

It says it would be undesirable for such a major change to be introduced without legislation.

"If commission were to be banned, there would be considerable practical issues relating to commission for insurance advisers.  Most risk insurance is distributed through authorised agents who receive commission. 

"Commission is paid by the product company and the client makes no payment other than the policy premiums. A ban on commission for risk insurance would require the client to make a direct payment to the adviser.  This is likely to result in a significant reduction in the volume of insurance purchased, adding to the well documented "under-insurance" in New Zealand. The result would be greater call upon social welfare benefits from families who might otherwise have taken out insurance".