Module Three

Question 1

The Code of Professional Conduct for Authorised Financial Advisers:

Who handles complaints about code breaches?

Answer 1

Financial Advisers Disciplinary Committee (FADC)

Question 2

The Code of Professional Conduct for Authorised Financial Advisers:

There are 18 standards, what are the 4 areas covered?

Answer 2

• ethical behaviour
• client care
• competence, knowledge, and skills
• continuing professional training.

Question 3

The Code of Professional Conduct for Authorised Financial Advisers: Ethical Behaviour

Code Standard One

Answer 3

Place the interests of the client first.
Act with integrity.

The Code of Human Rights 1993 applies i.e. non discrimination.

Question 4

The Code of Professional Conduct for Authorised Financial Advisers: Ethical Behaviour

Code Standard Two

Answer 4

Not do anything or;

Make an omission - that would or would be likely to bring the financial advisory industry into disrepute.

Question 5

The Code of Professional Conduct for Authorised Financial Advisers: Ethical Behaviour

Code Standard Three

Answer 5

Advisers must not give the impression that they, or their services, are independent when the client might consider they are dependent.

• be impartial
• avoid conflicts of interest

Question 6

The guiding principle defining independence as an AFA, is to say that…

Answer 6

“…the adviser must not be restricted in the services and products they provide, and their remuneration cannot be affected by their recommendations.”

Question 7

When an adviser uses the services of researchers or other third parties, the adviser should not state or imply the researcher is independent, unless…

Answer 7

“…the adviser believes the researcher could legitimately describe themselves [in the same vein as an AFA under the Code] as independent.”

Question 8

The Code of Professional Conduct for Authorised Financial Advisers: Ethical Behaviour

Code Standard Four

Answer 8

An authorised financial adviser must not borrow from or lend to a retail client.

Question 9

The Code of Professional Conduct for Authorised Financial Advisers: Ethical Behaviour

Code Standard Five

Answer 9

An authorised financial adviser must effectively manage any conflicts of interest that may arise when providing a financial adviser service.

Question 10

In a conflict situation,when can you continue to act for the client?

Answer 10

…if you obtain the fully informed consent of the client you can continue to act for them. The consent will be sufficient to demonstrate the client’s interests are being placed first.

Question 11

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Client Care

Code Standard Six

Answer 11

…must behave professionally in all dealings with a client… communicate clearly, concisely and effectively.

Question 12

You must assess each product you recommend. You need to have a reasonable basis for a recommendation. If you are unable to assess a product…

Answer 12

…someone you believe is competent may do that for you.

Question 13

Communicating ‘effectively’ for the purposes of the Code requires an AFA to…

Answer 13

…take reasonable steps to ensure the client

understands the communication.

Question 14

When transmitting the financial advice of another person to a client, an AFA must take reasonable care to ensure that the person providing the financial advice has an appropriate level of competence, knowledge, and skill to provide that advice, and either:

Answer 14

• ensure the client is aware that the AFA has not prepared the financial advice or assessed its suitability for
  the client; or
• accompany the financial advice with the AFA’s own financial advice in relation to the same subject matter.

Question 15

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Client Care

Code Standard Seven

Answer 15

An AFA must ensure each retail client has sufficient information to enable the client to make an informed decision about whether to use the …services.

• Disclosure

Question 16

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Client Care

Code Standard Eight

Answer 16

When providing …service to a retail client, an AFA must agree with the client the nature and scope of the service to be provided.

Question 17

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Client Care

Code Standard Nine

Answer 17

When providing a personalised service to a retail client an AFA must take reasonable steps to ensure that the personalised service is suitable for the client…

Question 18

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Client Care

Code Standard Ten

Answer 18

Where an AFA provides a personalised service to a retail client that is an investment planning service, or relates to a category 1 product… must provide an explanation of the service provided… to enable the client to make an informed decision about the financial adviser service.

Question 19

The explanation of of the service/advice provided under Standard 10 must meet the following guidelines:

Answer 19

Risks and potential benefits involved in following the advice, must be given in writing.
The written explanation must be provided to the client at the time the advice is given, or as soon as practical thereafter.
The client may opt out of receiving the advice but the AFA must not encourage them to do so, and the communication must be clear.

Question 20

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Client Care

Code Standard Eleven

Answer 20

An AFA must ensure there is an appropriate internal process in place for resolving client complaints in relation to the AFA’s financial adviser services.

Question 21

In relation to Standard 11 (internal complaints procedure), what are the obligations for an AFA?

Answer 21

Maintain a register of complaints, including the action taken to resolve the complaint.

If there is a complaint, you need to provide the client with:

• an acknowledgement of the complaint
• information about your internal complaints handling process
• guidance on how to complain to the Financial Markets Authority and to any external dispute resolution scheme.

Question 22

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Client Care

Code Standard Twelve

Answer 22

An AFA must record in writing adequate information about any personalised services provided to a retail client.

Question 23

Under Standard 12 (written records), what are the AFA’s obligations?

Answer 23

• retain copies of all information and documents provided to or received from the client regarding personalised services.
• comply with the Privacy Act 1993.

Question 24

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Client Care

Code Standard Thirteen

Answer 24

Ensure that records of all information and documents required under this Code are kept for a minimum of 7 years.

Question 25

Under Standard Thirteen (records retained for 7 years), what are the terms?

Answer 25

• Commences on the last date the AFA provides a financial service or;
• in relation to a financial product transaction, commences from the last day a benefit is payable under that product, if that date is earlier.
• records may be electronic so long as they are readily retrievable.

Question 26

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Competence

Code Standard Fourteen

Answer 26

Before providing a financial adviser service, an authorised financial adviser must have the competence, knowledge, and skills to provide that service.

Question 27

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Competence

Code Standard Fifteen

Answer 27

An AFA must have knowledge of the Act, the Code and other legal obligations relevant to the operation of the AFA’s practice (including relevant consumer protection laws) that are adequate for the proper operation of that practice.

Question 28

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards of Competence

Code Standard Sixteen

Answer 28

To be an AFA, a financial adviser must attain the Components of the New Zealand Certificate in Financial Services (Level 5) that are relevant to the financial adviser services provided by the AFA.

Question 29

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards for cont. prof. training

Code Standard Seventeen

Answer 29

An AFA must maintain and keep current a professional development plan (CPD) for each period.

Question 30

Under Standard 17 (CPD plan), what should the plan include?

Answer 30

• areas for improvement
• proposals for making those improvements
• details of planned training/seminars etc.
• take into account the required skills to identify gaps related to the required level of competence.

Question 31

The Code of Professional Conduct for Authorised Financial Advisers: Min. Standards for cont. prof. training

Code Standard Eighteen

Answer 31

An AFA must undertake sufficient continuing professional training to maintain competence;

and keep up-to-date with developments relevant to practice.

Question 32

To satisfy the requirements of Standard Eighteen (sufficient training), what are the standards?

Answer 32

• minimum 30 hours per two CPD periods (24 months)
• …“such additional training as is necessary to maintain the AFA’s competence at the appropriate level”…
• keep appropriate records of any CPD activity
  completed.
• does not include training that focuses on a particular product.