Client Care Standards

Table summarising major submission points raised on the second draft of the Code and the Committee's responses to those issues.

Issue raisedResponse
 
Code Standard 6 - Behaving professionally
Guidelines of what is required in order for a communication to be considered 'effective' were requested. Concern was expressed that the effectiveness requirement was too subjective. The Committee acknowledged the risk inherent in failing to qualify the 'effective' requirement. An additional provision has been included in Code Standard 6 to confirm that communicating 'effectively' requires an AFA to take reasonable steps to ensure the client understands the communication.
Can the obligation imposed by the words 'analysed properly' in CS 6(d) be clarified or the word 'properly' removed? Paragraph (d) has been reworded to address this concern by replacing the reference to 'properly' analysed. The reworded obligation restricts AFAs to making recommendations only in relation to financial products that have been analysed by the AFA to a level that provides a reasonable basis for any such recommendation, or analysed by another person upon whose analysis it is reasonable, in all the circumstances, for the AFA to rely.
Can it be clarified whether an AFA can rely on information contained in prospectuses and investment statements in this regard? The Code Committee did not consider that any further clarification was warranted in relation to the appropriateness of an AFA relying on information contained in a prospectus or investment statement. A consideration of the content of public disclosure documentation would form a part of the analysis contemplated under this Code Standard in relation to securities offered to the public, but whether such an analysis would provide an AFA with a reasonable basis for a recommendation in relation to the securities in question can only be determined by reference to the particular circumstances.
Should the requirement under CS 6 to 'analyse properly' provide an exception for where there is no analysis available in relation to the financial product in question? Paragraph (d) of Code Standard 6 is limited to a situation where an AFA makes recommendations. The Code Committee considered that if an AFA goes so far as to make a recommendation (as opposed to merely expressing an opinion or providing information about a financial product) then it is entirely appropriate to insist on an appropriate level of analysis to have been carried out, without exception. In situations where no analysis is available, and the AFA is unable to properly analyse the product themselves, Code Standard 6 would not prevent the AFA from expressing an opinion about the product, and clarifying that the lack of proper analysis available means that the AFA is unable to provide a recommendation.
It was suggested that the term 'third party' in relation to reliance being placed on analysis of a financial product be defined and/or amended to read 'another person or entity'? Paragraph (d) has been reworded so as to refer to reliance being placed upon the analysis of 'another person'.
Code Standard 7 - Ensuring retail clients are able to make informed decisions
How is the cross over between disclosure requirements under the Act and the Code to be resolved? Code Standard 7 has been substantially revised. The focus of this Code Standard is on the outcome of informed decision-making. The disclosure obligations under the Act are concerned with the process of providing information. Consistent with the purposes of the Act, the Committee considered it important to provide for a specific obligation to be placed on AFAs to ensure clients have sufficient information to be able to make an informed decision.
It was suggested that the Code Committee liaise with the Ministry of Economic Development in relation to CS 7 The Code Committee has extensively engaged with the MED and other government agencies throughout the course of its deliberations. The Committee is comfortable that the approach complements the approach taken by the MED in this regard.
Should disclosure be limited to services that only an AFA can provide? Ensuring clients are able to make informed decisions is an appropriate obligation to impose universally, without having regard to the classification of the financial product in question.
Should CS 7 impose an objective standard, by referring to information which would inform a reasonable client, and be limited to allow the AFA to determine what is reasonable in the circumstances? The Code Committee did not consider that it would be appropriate to relax the standard required, noting the importance of ensuring that clients should be considered based on their own particular characteristics, and not by reference to some reasonable ideal. This means that the extent of information that one client requires in order to make an informed decision may well differ from the extent of information that another might require. The Committee considered that this outcome was appropriate.
It was suggested that the explanatory detail should clarify that the information required in a disclosure statement pursuant to the Act need not be repeated if that information is adequate for a client to make a fully informed decision. The fact that additional disclosure is not required if disclosure required by regulation is sufficient, and that disclosure in relation to the AFA generally need not be repeated for every piece of advice should be expressly stated. Clarification has been included to confirm that compliance with disclosure obligations under the Act may satisfy the requirements of the Code Standard. However, it has also been clarified that in some circumstances disclosure under the Act may not be sufficient of itself.
Should CS 7 also refer to the client's right of complaint to the Commission as per section 96(1) of the Act? The Code Committee did not consider that reference to a right of complaint was strictly necessary in order for clients to make informed decisions. References to complaints processes have therefore been removed from the scope of the principle.
Code Standard 8 (now CS 8 and 9) - Suitability of personalised services for retail clients and explaining the basis of personalised services for retail clients
CS 8 should be divided back out into two separate code standards: the first dealing with suitability analysis and the other setting out the requirements for a written explanation. The Committee agreed that combining the Code Standard on suitability analysis with the Code Standard relating to the provision of written explanations was problematic. The previous Code Standard 8 as it appeared under the second draft of the Code, has been separated out into two separate standards in the final form of the Code recommended to the Commissioner.
Should AFAs be able to quote a fee for providing an explanation and/or suitability analysis on the basis that the fee is waived if the client opts out? The Committee considered that the wording of the Code Standard was sufficient to cover reasonable fee estimating practices of AFAs.
Should the explanation required under CS 8 be required to be given in writing? The Committee considered that the presumption should be for a written explanation to be provided. However, the additional provisions of Code Standard 9 provide an appropriate opt out option that is able to be utilised without unduly compromising the consumer protection provided by this Code Standard.
Should both parts of CS 8 state that they relate to retail clients only? Both Code Standard 8 and 9 are limited to personalised services provided to retail clients.
Should the requirement for an explanation for the basis of the advice provided be removed? Can the purpose of this required written explanation be clarified? The Committee considered that the consumer protection objectives of the Act were best achieved by requiring such an explanation to be provided. Otherwise, clients may not be aware of key factors impacting on personalised services provided for them, which may undermine the quality of the services provided and undermine confidence in financial advisers. The opt out mechanism in Code Standard 9 provides an appropriate work around, provided the client is fully aware of what they are opting out of.
Should the written explanation required under CS 8 be confined in its application to advice provided in relation to category 1 products? The written explanation required under Code Standard 9 is now limited to personalised services given to a retail client that either constitute an investment planning service, or relate to a category 1 product. This ensures that obligations placed on AFAs are not unduly burdensome when providing personalised services in relation to products that do not require the adviser to be authorised. The Committee considered this distinction was important in relation to this Code Standard in order to ensure consistency with distinctions made in the Act.
Should the suitability analysis required under CS 8 be confined in its application to advice provided in relation to category 1 products and investment planning services? The Code Committee considered that ensuring suitability of a personalised service was an essential obligation in every situation, regardless of the categorisation of the financial product to which the service relates. This approach complements s33 of the Act.
Where an AFA is engaged by a QFE, the obligations under CS 8 should not extend to cover services that a QFE adviser could perform without being an AFA. The Committee did not consider that it was appropriate for the Code to specify differing standards for AFAs engaged by QFEs. Code Standard 9 has been limited in its application, as discussed above.
Where an AFA is relieved of the obligation to provide a suitability analysis due to an instruction from the client, should that instruction have to be recorded in a separate document? It was suggested that it would be more workable if the client instead were able to acknowledge a waiver in a client service agreement, provided it is clearly brought to the attention of the client. The wording around the opt out option under Code Standard 8 has been reworked so as to refer to a document that includes a clear acknowledgment from the client as to the advantages of a suitability analysis. No restriction has been placed on the form of document that might be used for this purpose.
Should the obligation to provide written explanations be confined to only requiring such an explanation when requested by a client? The Committee considered that it would be unreasonable to expect a retail client to be sufficiently aware of their rights to expect them to request a written explanation as to the basis of any financial advice provided. The onus has been left with the AFA in this regard.
Should the obligation to take reasonable steps to ensure suitability for the client under CS 8 be limited to enquiry of the client, with the suitability obligation based on information provided by the client? The Committee did not consider any wording change was warranted in response to this query.
Should the ability for a client to opt out under CS 8 be able to be relied on by every employee employed by an employer that receives the opt out notice? Code Standard 8 and Code Standard 9 now both provide relief for opt outs that have been received by the AFA, the AFA's employer or the AFA's principal.
The Commissioner for Financial Advisers directed that this Code Standard be revised so as to clarify that where a client has sought personalised advice from an AFA, but has opted out of receiving a suitability assessment such that the service becomes a class service, then the AFA must comply with Code Standard 10. The Committee has amended the Code by adding an additional explanatory note. In addition, references to 'personalised service' in relation to the opt out mechanism have been replaced with the wider concept of 'financial adviser services' to address the Commissioner's point.
Code Standard 9 (now CS 10) - Providing class services for retail clients
A number of submitters suggested that the 'appropriate statement' should be able to be provided orally as an alternative to being in writing The redrafted Code Standard 10 is now simply stated as an overarching principle, requiring the AFA to take reasonable steps to ensure clients are aware of the limitations of any class service provided. The Code Standard itself does not require those steps to include written notification of those limitations, although regulations prescribed under the Act may well do so.
The requirement to provide the 'appropriate statement' should only be made to apply once to each client, and the AFA should be able to be rely upon any 'appropriate statement' previously given. The new Code Standard 10 only requires an AFA to have taken reasonable steps to ensure clients are aware of the limitations of class services provided. It will be up to the AFA to determine whether or not steps taken in the past are sufficient to cover a new class service provided.
Should CS 9 be amended to reflect the fact that class services provided by an AFA may take into account customers' financial situations, in particular where the class service involves generic risk calculators used by financial service providers in relation to category 1 products? This query has been addressed in the reworded Code Standard 10.
Code Standard 10 (now CS 11) - Complaints processes
Should the definition of 'complaint,' in particular the reference to 'dissatisfaction,' in relation to CS 10 be limited to ensure it only captures statements intended to be complaints? The definition of 'complaint' has been reworked to address this concern, with an option provided for AFAs to seek clarification as to whether or not an expression of dissatisfaction is intended to constitute a complaint for the purposes of the Code. Having regard to consumer interests, the Committee considered that this was the most appropriate balance to strike.
A number of submitters suggested that complaints should be required to be made in writing to avoid uncertainty as to what is a 'complaint'. Requiring complaints to be expressed in writing can serve to discourage consumers from pursuing complaints. The Committee considered that the appropriate approach to take was to place the onus on the AFA to follow up expressions of dissatisfaction to ensure they are dealt with appropriately, and establish whether they were intended to constitute actual complaints.
Should the definition of 'complaint' be removed as it has an existing sufficiently understood meaning? It was suggested this would help to maintain consistency with the Act in which the term is not defined. Given the extent of feedback around what or what may not constitute a complaint, the Committee was not prepared to delete the definition altogether.
Does the definition of 'complaint' include expressions of dissatisfaction made in relation to a fee rendered by an AFA? If it is intended to do so, the definition should be amended to reflect this fact. Where a client expresses dissatisfaction regarding a fee charged, that expression would not normally be categorised as an expression of dissatisfaction 'about the AFA's financial adviser services'. If in doubt, the AFA should seek clarification from the client as to whether or not the dissatisfaction is so significant that the client wishes it to be treated as a complaint under the Code.
Should CS 10 be limited to complaints by retail clients only? The Code Committee considered that it was appropriate for obligations relating to client complaints to extend to both wholesale and retail clients.
Code Standard 10 (now CS 11) - Complaints processes
Should the provision of class advice which is provided verbally be excluded from the scope of CS11? Code Standard 12 is now limited to personalised services provided to retail clients.
Should CS 11 be confined in its application to retail clients? Code Standard 12 is now limited to personalised services provided to retail clients.
Should relief under CS 11 be extended beyond AFAs who are employees, to encompass AFAs who look to another group company rather than their immediate employer to take appropriate measures? Providing relief beyond employee AFAs was not considered warranted.
Code Standard 12 (now CS 13) - Record retention
What is an AFA required to do in respect of employer records? In particular, should the AFA who is leaving employment be able to rely on the assurances of the employer as to the record keeping? The additional provisions of this Code Standard now refer to appropriate measures being taken by an AFA's previous employer, where applicable.
Can it be clarified whether CS 12 is intended to apply retrospectively to records created before the Code comes into force? Code Standard 13 is quite explicit that it only applies to information and documents 'required under this Code'. As a consequence, it is clear that the Code Standard does not apply to any information previously gathered prior to an AFA becoming authorised, although there is nothing to prevent an AFA observing the standards under Code Standard 13 in respect of information gathered in the past.
The blanket obligation to retain records for 7 years beyond the end of the client relationship was seen by some as being inappropriate for information that is confined to a particular transaction. Additional wording has been included to clarify the commencement of the 7 year minimum period in response to this issue raised.