Examining the Code of Conduct's fairness standards

by Ksenia Stepanova10 Sep 2020

The new Code of Conduct for financial advisers is often described as “non-prescriptive,” giving advisers free reign over how they choose to structure and document their advice process – however, according to Financial Advice New Zealand learning & development manager Andrew Gunn, there are still important tickboxes that advisers will need to check off.

A key part of the Code is the obligation to “treat clients fairly,” and to make sure they understand the nature and scope of the offered advice. Gunn says that this will likely be a “hot area” going forward, as being able to prove a client’s understanding of your service will be a vital part of the process.

“If your clients don’t understand the nature and scope of your advice, you’re not actually being that fair – you’re operating on the basis that they understand it all without checking,” Gunn said.

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“Limitations to advice are all very well, but you have to take reasonable steps to ensure the client understands them.”

“If you note the elements of the Code, a lot of them are all about the client,” he continued.

“It’s about treating them with respect, listening to them and responding – these are all active actions that you can take with your client. If they get the strong impression that you’re responding and considering their views, and you’re recording those and documenting them – obviously you’re demonstrating that you are fair.”

Gunn also urged advisers to pay special attention to Code Standard 1, which emphasises that fairness is “circumstantial” – that is, it depends on the particular circumstances of each case, and the nature of the advice as it relates to that circumstance.  However, he says fairness is still a “two-way street”, and one of the most important things for advisers to emphasise is that they are still responsible for their own financial decisions.

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“There’s a final clause in that Code standard which I think is very important to outline to your clients, and the nicest and gentlest possible way to say it is that fairness is a two-way street,” Gunn said.

“It doesn’t actually mean that when you make a recommendation, they aren’t still responsible for the decisions that they make. You can put the best recommendations and their best interests in front of them in good faith, but they aren’t necessarily not exposed to risk.”

“Communication is of course hugely important,” he added. “You need to be communicating this to them in a manner that is clear and timely.”

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