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Proposed Amendments to General Code of Conduct: Sections 8 & 9

The Registrar has published proposed amendments to the General Code of Conduct for Authorised Financial Services Providers and Representatives, 2003 and proposed amendments to the Specific Code of Conduct for Authorised Financial Services Providers and Representatives conducting Short-term Deposits Business, 2004.

The closing date for comments is 28 February 2018.

A number of these amendments were briefly discussed in a previous post, dated 9 November. This post focuses on the amendments under sections 8 and 9 of the Code. These proposed amendments provide some interesting changes concerning how financial providers are required to engage with their clients when furnishing advice.

Under section 8, providers are no longer required to only collect ‘appropriate and available information.’ Instead, advisors are required to undergo a more proactive and in-depth investigation into the needs of their client, in a manner that fosters greater transparency. In seeking to determine the most suitable financial product for their client, advisors will need to demonstrate that they have scrutinised the specific needs, objectives, circumstances, financial experience and knowledge of their client. Where the provider is dealing with a group fund or scheme, the provider is also required to take into account the reasonably identified needs of individual members.

The need to proactively consider the financial experience of the client is important, as it provides greater protection to individuals who rely on the advice of their advisors due to a lack of knowledge or experience. One example of this could be a newly widowed client who needs to plan for the future of her children but is inexperienced in dealing with financial products. In certain respects, this amendment has the capacity to foster greater transformation in the financial sector as it addresses the needs of those who have not previously had access to professional advice.

Under the amendments, advisors must therefore demonstrate that they have applied their minds to the unique needs and circumstances of their clients. Advisors are also required to prioritise the best interests of their clients over and above the need to ‘make a sale’. In cases where the provider is unable to provide a suitable product, the provider must openly explain to the client why this was not possible and decline to offer a product. The advisor must then refer the client to another more suitable advisor.

The amendments to section 4(b)(2) seek to ensure open communication between the client and the provider. This section provides that when analysing the information provided by the client, the provider may, in determining the extent of the client information necessary to provide appropriate advice, consider the following:

  1. any specific objectives or financial needs of the client that the client has explicitly requested the provider to focus on, or not to focus on,
  2. any specific objectives or financial needs of the client that the client and the provider have explicitly agreed to focus on or not to focus on,
  • applicable surrounding circumstances that make it clear that the analysis can reasonably be expected to focus only on specific objectives or specific financial needs of the client,
  1. the fact that the client has explicitly declined to provide any information.

Where providers are limited in their capacity to provide suitable advice, due to the reasons listed above, they are required to openly communicate this to the client as soon as reasonably possible. The advisor should also ask the client to take particular care to consider on its own whether the advice is appropriate considering the client’s objectives, financial situation and particular needs. While not removing the responsibility on the provider to provide suitable advice, this has the potential to foster greater client participation.

The amendments under section 9 provide that the Registrar may determine the format and content of the record of advice. Having a prescribed format for the record of advice may provide greater legal certainty to financial advisers while saving costs. Advisors will however, need to ensure that the advice given is tailored to the unique needs and circumstances of the client.

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