The Securities Commission has rejected the draft code of conduct for financial advisers and returned it to the committee for more work.Financial Advisers Commissioner David Mayhew, wrote to the code committee today outlining some concerns. He has ask
The Securities Commission has rejected the draft code of conduct for financial advisers and returned it to the committee for more work.
Financial Advisers Commissioner David Mayhew, wrote to the code committee today outlining some concerns. He has asked the committee to reconsider three provisions and to report back to him as soon as practical.
Mr Mayhew has identified three parts of the code that he says are not consistent with the Financial Advisers Act: the background to the code, Code Standard 5 and Code Standard 8.
He said in the letter to the code committee that the background to the code includes a description of financial advisers who are required to be authorised under the act.
“It is my opinion that this description needs to be revised in order to accord with changes to the act that came into force on 1 July,” he wrote.
Code Standard 5 states: “An Authorised Financial Adviser (AFA) must not provide financial advice to a retail client in relation to a financial product that is not offered to the public if the Authorised Financial Adviser is a related person of the product provider of that financial product.”
Mr Mayhew said he was concerned the standard may give the impression the code endorses advice on wholesale products to retail clients in any case where the AFA is not a related party of the product provider.
However, with securities, this would “in most cases” be inconsistent with section 38 of the Financial Advisers Act, which bans advisers from recommending securities if the offer for subscription was illegal.
“If securities are not “offered to the public” then the offer of those securities to a retail client (which is a subset of “member of the public”) would be illegal in the great majority of cases,” Mr Mayhew wrote.
Code Standard 8 establishes a general obligation on an AFA, when providing a personalised service to a retail client, to take “reasonable steps” to ensure the personalised advice is suitable for the client.
While he endorsed this obligation, Mr Mayhew pointed to extra provisions for when a client instructs an adviser not to determine the suitability of a personalised service.
This part of the code “fails to alert advisers and clients” that this may change the definition of the service from “personalised service” to "class advice” under the act.
“At present the draft standard refers only to personalised services, and in my view is potentially confusing in this regard. I direct that this standard be revised to address this.”
