There are four simple steps.

Step 1:
Get the Select Committee to change the wording of proposed Schedule 5 s32 of FMCA as we recommended to the Select Committee.

FSLAB proposes “The Code must provide for minimum standards of professional conduct that must be demonstrated when regulated financial advice is given….” The words underlined are the ones that appear to have led the CWG to the conclusion it is writing a service Code. We think that is where one set of their difficulties starts.

We submitted that the section should be amended to read:

“The Code must provide for minimum standards of professional conduct that must be demonstrated by any person who is providing financial advice”. We have underlined the different wording. This immediately reintroduces the possibility of an occupational code for human advisers.

Step 2
At law, persons can be human (you and us) or non-human (e.g. companies and other entities).

If our suggestion is adopted, then it opens the possibility of an occupational Code for human advisers, and a different Code for entities. That is the Code can be comprised of two targeted Codes, one for humans and the other for non humans with no boundary (or intersection) problems – you are either human or you are not...

Step 3 The human code.
We believe that the current Code Committee has got it pretty right (albeit at the third iteration) in the current AFA Code (except perhaps for their dropping of a Diploma earned before 2011). So why not build on that for the other advice specialties. So how?

Draw up a seven column by 19 row matrix.

In the header row, fill in each column after the first with the name of a specialty – e.g. investment, personal insurance, fire and general insurance, mortgages, trustee services and other consumer credit.

In the first (header) column, write in each row a code standard from the current AFA Code.

In the second column, write the Code for AFAs for each standard – for starters, just write the standard without any of the explanatory material. [Note 1]

Then pick any Code standard and look at each of the specialties to see whether that wording (from the AFA Code) could be applied to the Code for that specialty – yes or no; and if no, why wouldn’t it apply and could there be any possible simple changes to the wording that could make it work.

Repeat that process for each of the other specialties for that Code Standard.

Then pick another standard and follow the same process. Repeat consecutively for all 18 existing Code Standards.

If you agree with our view of the AFA Code, then the 18 cells in the investment column of the matrix should be Yes.

That leaves the other 90 cells or squares in the matrix to be looked at (18 standards by five specialities).

Clearly the alternative qualifications for non investment specialties would have to be looked at, but we reckon there would be good industry support for the principle of NZ Certificate Level 5 for Core, Specialty and Financial Advice being the standard minimum, but with the ability to use alternative qualifications that would differ by speciality. This is the same approach as was followed for AFAs.

We haven’t actually done the full exercise ourselves, but we would be pretty confident that 80% of the squares would give a good fit.

That doesn’t leave too many to concentrate on finding a compromise wording for.

Step 4 Entity Code
Write a separate conduct Code for entities using Code Standards that would apply to entities. Don’t try to mangle the human Code Standards to fit. There will be no boundary problems because the person providing the advice can be only human or an entity, and never both.

Our guess is that following such an approach the CWG would get further in very short time than they have in the 8 months to date. And we don’t think that resulting code would be a three hump camel like the CWG has come up with to date.

We have an idea as to how we could test and prove the concept of this framework inside of a month from go to whoa for well under $50,000. It would involve a workshop of 10 experienced practitioners from right across the business model spectrum for each financial advice specialty, moderated by a specialist facilitator. We wonder if someone in officialdom might be interested in asking us more.

Note 1: CS1 would have to be amended because “putting the client first” has been imported into a statutory duty.

On behalf of the Board of SIFA
Murray Weatherston
Chair