At yesterday's draft Code consultation session Code Committee chairman Ross Butler said the Investment Savings and Insurance Association (ISI) had given a cracker of an idea around the requirement for effective communication.

The ISI said authorised financial advisers (AFA's) might feel they had effectively communicated with a client on day one but if an investment was to fall over in two years time, it may turn out the communication wasn't effective in explaining risks.

The ISI said there is a risk that advisers may be judged by the benefit of hindsight and the association asked whether a safe harbor or a minimum standard approach could be taken within the code standard.

Code Committee member and Kensington Swan partner David Ireland said the Code Committee has observed from this, that advisers may end up scared of their own shadows with refusal to commit themselves to anything because of a concern they could be spanked for being caught short of effective communication.

"So we're trying to look at some sort of safe harbor guideline type test to provide some comfort for advisers."

He said one of the flipsides of trying to avoid being too prescriptive with the code is that you end up with a bit of uncertainty with what advisers specifically need to do in particular situations.

Chapman Tripp partner Tim Williams also brought up a concern around boundaries of Code Standard one where an AFA must place the interests of the client first and must act with integrity.

Williams says if you take that code standard to the enth degree, that particular rule could require never ending investigation of a particular matter for a client or it could involve not charging anything because it would be in the best interests of the client not to charge a fee.

"There's obviously got to be metres and bounds here. In Australia they recognise this by having in their regulation: take all reasonable steps to act in the best interests of your client," said Williams.

"I was wondering if the Code Committee considered that Australian standard and recognised that in actual fact code standard one doesn't have any limits or reasonableness to it."

He said the definition of putting a client's interests first would be too broad if an adviser was taken through the disputes reolution process.

Ireland replied saying the Code Committee had proposed an alternative on the client first standard, but there was strong pushback from consumer groups who did not want the client first approach watered down.

He said a balanced approach is needed and the Code Committee is happy to take specific feedback on how to restrain the standard, while also thinking about consumer groups.