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New Zealand Securities Commission |
Last Updated: 16 November 2014
Regulatory Guide: FAA
01
QFE ADVISER BUSINESS STATEMENT
GUIDE
Securities Commission New Zealand
Level 8, Unisys House
56 The Terrace
P O Box 1179
WELLINGTON 6011
Email seccom@seccom.govt.nz
Website www.seccom.govt.nz
December 2009
CONTENTS
INTRODUCTION .................................................................................................. 3
What is this guide for?
.......................................................................................
3
BECOMING A QFE .............................................................................................. 4
Does my business have to become a QFE? ..................................................... 4
What is an ABS? ............................................................................................... 4
What’s for and against becoming a QFE? ......................................................... 5
How does my business become a QFE? .......................................................... 6
How do I prepare an ABS?................................................................................ 6
How will QFEs be regulated? ............................................................................ 8
What happens next?
.........................................................................................
9
PREPARING PART 1 OF YOUR ABS: YOUR ADVISER BUSINESS .............. 10
Overview of Part 1 ........................................................................................... 10
Structure.......................................................................................................... 11
Products and services ..................................................................................... 12
Customer types ............................................................................................... 13
Advisers .......................................................................................................... 14
Delivery channels for products and services
................................................... 15
PREPARING PART 2 OF YOUR ABS: GOVERNANCE AND COMPLIANCE ARRANGEMENTS ............................................................................................. 16
An overview of Part 2 ...................................................................................... 16
The “if not, why not” analysis........................................................................... 17
People, Processes, Professionalism ............................................................... 17
PEOPLE: Recruitment..................................................................................... 19
PEOPLE: Knowledge, skills and competence ................................................. 20
PEOPLE: Supervision ..................................................................................... 22
PEOPLE: Performance management.............................................................. 23
PEOPLE: Reward............................................................................................ 24
PROCESSES: Marketing ................................................................................ 25
PROCESSES: Information for customers ....................................................... 26
PROCESSES: Suitability................................................................................. 27
PROCESSES: Servicing ................................................................................. 28
PROCESSES: Complaints and compensation ................................................ 29
PROCESSES: Operations............................................................................... 30
PROCESSES: Record keeping ....................................................................... 31
PROFESSIONALISM: Governance................................................................. 32
PROFESSIONALISM: Culture......................................................................... 33
PROFESSIONALISM: Compliance
.................................................................
34
INTRODUCTION
The Financial Advisers Act will be fully operational from December 2010. It
sets new professional standards for financial advisers
and gives the Securities
Commission power to regulate people who give financial advice.
The Commission will also
regulate some businesses that employ or engage
financial advisers, and these businesses will be known as qualifying financial
entities
(QFEs).
What is this guide for?
It’s to help you decide if you want your business to become a QFE, and
if so, how to go about applying by preparing an adviser
business statement (ABS)
which a QFE will need on an ongoing basis.
Authorised financial advisers will also have to prepare an ABS, but this guide is just for entities. We will publish a financial adviser guide in the first quarter of
2010, once the Code Committee has released a draft Code of Professional
Conduct (Code) for consultation.
BECOMING A QFE
Does my business have to become a QFE?
No, it doesn’t. Financial adviser businesses may choose whether or not
to apply. An entity that decides not to can still
conduct its financial
adviser business, employ advisers and offer services to advisers. However, its
financial advisers will
need to be individually registered.
To become a QFE, an entity must satisfy the Commission it has the capacity to
take responsibility for its financial advisers’
conduct. We call this
“frontline compliance responsibility” because the Commission will
then rely on the QFE to ensure
its advisers comply with the Act.
So long as businesses that engage advisers invest in appropriate compliance
infrastructure, processes and people, becoming a QFE offers
efficiency and cost-
reduction advantages. The business and its advisers will benefit from
streamlined registration, disclosure,
disputes resolution arrangements and
regulatory supervision.
Note, though, the Commission policy that QFEs will derive no
streamlining benefit from conduct obligations because
QFE and non-QFE
advisers doing similar work must adhere to similar standards of
professionalism and competence.
We will use the QFE licence’s
terms and conditions to ensure regulatory neutrality between QFE and non-QFE
advisers.
What is an ABS?
All businesses applying for QFE status must prepare an ABS. This describes
your adviser business (Part 1) and the governance
and
compliance arrangements that ensure it and its advisers operate professionally
(Part 2).
Your ABS will be the Commission’s key source of information, allowing
us to assess your entity’s capacity to take responsibility
for the conduct
of its financial advisers, whether it can be granted QFE status, what terms and
conditions to impose on the QFE,
and how to structure its ongoing monitoring and
supervision.
In particular, your ABS will:
• describe how your business takes frontline compliance
responsibility for its advisers’ professional conduct and
competence
• compare (Part 2) your own business conduct and
compliance requirements with those of the AFA Code of Professional
Conduct, and,
if they are not the same, fully explain why not. The Act allows a QFE to set its
own standards of adviser conduct and
competence. Using the Code
as
a benchmark allows the Commission to promote regulatory neutrality and assess
an entity’s capacity to take responsibility for
its advisers’
conduct
• be a “living document” that QFE-status will oblige you
to keep up to date and reflect changes as your business
evolves. We envisage
your ABS being written in a form that suits your own business’ needs
– that way, it will assist
your governance and management
• be approved and maintained by the relevant governing body –
usually your board of directors
• remain an internal document – you do not need to make it
public unless you choose to.
What’s for and against becoming a QFE?
It’s not compulsory to become a QFE because they have significant legal
obligations (see above). You will have to weigh the
streamlining benefits
against the responsibilities and costs.
For example, your business will have to refrain from misleading or deceptive
conduct. It will have to ensure it fulfils all its commitments
under the Act,
and its terms and conditions. Failing to do so may incur a range of
penalties.
QFE benefits vary depending on the product category on which advice is given,
whether the product is issued by the QFE or a third
party, and whether your
business is providing a financial planning service.
Benefits are limited for QFEs engaging only authorised financial
advisers (ie those advising on category one products issued
by third parties
or providing financial planning services). The Act requires these advisers to be
individually registered and authorised
even if they work for a QFE. They may
individually benefit from some streamlining in applying for authorisation but
the Commission
does not expect this to save businesses any significant
costs.
On the other hand, QFE status may substantially benefit businesses engaging
many advisers who do not have to be individually authorised.
The business and
these advisers can take advantage of streamlined registration,
disclosure, disputes resolution arrangements
and regulatory supervision.
Not only do these advisers usually not need individual registration, their
QFE’s disclosure statement can cover them all
rather than each
adviser having to supply a separate statement. As well, the Commission will
usually rely on the QFE’s
systems and compliance arrangements rather
than directly monitoring each adviser’s activities.
For corporate groups the choice of which entity or entities should be a QFE
depends on where effective control over compliance is located. We will expect
an
entity to demonstrate it has effective control over its advisers (employed or
nominated) and – in respect of category 1 products
– effective
control over the issuing or promotion of these products.
A proposed technical amendment to the legislation will allow a QFE to
nominate any individual as an adviser. We will require the
QFE to commit to
frontline compliance responsibility for that person and demonstrate it has
effective control over their conduct.
How does my business become a QFE?
To become a QFE a business must:
When
Latest date to be on-time for a Dec 2010 commencement of the Financial Advisers Act
|
Prepare an ABS
Submit the ABS to the
|
Now onwards
|
mid 2010
|
|
Commission for review
|
From February 2010
|
30 July 2010
|
|
Address any queries arising from the Commission’s ABS review
|
From February 2010
|
1 October 2010
|
|
Get written confirmation that the Commission consents to the business
applying for QFE status
|
From February 2010
|
Oct/Nov 2010
|
|
Register online with the Companies Office as a financial service provider
and formally apply for QFE status (a fee is payable and
a short questionnaire
must be completed)
|
From 31 May 2010
|
Nov 2010
|
The Commission may interview senior management (the director of the financial
adviser force, for instance) and conduct on-site visits.
How do I prepare an ABS?
Structure and write it in a form that suits your own business needs. We
expect your ABS to help you with governance and management.
By documenting your business model, and governance and
compliance arrangements, the ABS will ensure your business
can comply with the
Act and
that your advisers can operate professionally in an appropriately controlled
environment.
An ABS’s length and complexity will vary according to your business and
the extent to which your policies and procedures are
already documented
elsewhere. It should be comprehensive enough to help your governing body review
and oversee its adviser business.
Note that detailed procedures should be
covered in separate manuals, which the ABS can cross-reference.
You may divide your ABS into sections representing your business’s
operational structure, but the sections or the whole document
must clearly
identify two parts:
• Part 1 describes your adviser business and, at the least,
must contain the information detailed below in Preparing Part 1 of Your
ABS. It will give a context for Part 2.
• Part 2 describes your governance and compliance
arrangements, and must explain how your business will take
frontline compliance responsibility for the professional conduct
and
competence of all its advisers in all their advice work. Preparing Part 2
of Your ABS (below) sets out key principles to address.
Diagram: Preparing an ABS
Act requirements
Business model
Part 1
Identified
Impact areas
Allocated
Processes
Compliance assurance
responsibilities Controls
Management information
Part 2
Governance
You should ensure your ABS conveys your business culture, and particularly
how you ensure professionalism is embedded in governance
and adviser activities.
It must articulate how you propose maintaining the capacity for adviser
frontline compliance responsibility.
It’s important that Part 2 set out how you propose checking
– through management information, supervision
and audit, for
example – that your
business and its advisers are operating according to your
policies and procedures and conforming to the standards set
out in your
ABS.
How will QFEs be regulated?
The Commission will use a range of information – including
ABSs, periodic reports and notifications from QFEs about
their activities,
market intelligence and complaints – to focus its monitoring on QFEs with
higher risk of serious non- compliance
with the Act.
The ABS review and licensing process is important, but we will place emphasis
on our ongoing regulatory relationship with QFEs. We
will determine the extent
of ongoing QFE regulation and monitoring by taking account of:
• what the ABS says about organisational culture and the QFE’s
approach to professionalism
• the thoroughness of its approach to compliance procedures
• the nature, scale and extent of the QFE’s business, and the
impact in its market
• the degree to which third parties verify, certify or
accredit a QFE’s compliance with the procedures
and standards
fundamental to adviser professionalism.
The Commission will tailor its regulatory approach to each QFE, and the
industry as a whole, according to the extent to which the
QFE, and the industry,
are prepared to voluntarily adopt high standards of professionalism. If QFEs
self- impose rigorous standards,
we will be able to scale back the intrusiveness
of regulatory supervision. Your ABS will give your QFE an early opportunity to
take
the lead by willingly embracing professional standards.
Agreed better-practice benchmarks are important here. We want to work with
industry to develop standards that set benchmarks across
the national adviser
profession. Industry-developed standards – such as those already
specifying competence levels for
authorised financial advisers
– and appropriate approaches to ensure conformance with them, give
industry certainty
and consistency, and facilitate the giving of professional
advice.
What happens next?
From now on, prospective QFEs may start preparing their ABSs. If you have
questions about it, please contact the Securities Commission.
Although we are not formally consulting on the content of this guide, we
welcome any suggestions for improving later versions.
The Financial Services Providers (Pre-Implementation Adjustments)
Bill introduced in December 2009 will simplify implementation
of the new law and
may impact on arrangements you put in place for your QFE. Contact the Commission
if you would like to discuss
your approach to dealing with the effect of these
changes in your ABS.
We will accept ABSs for review from 1 February 2010. You should aim to submit
your ABS no later than 30 July 2010 so you
are ready when the
Financial Advisers Act comes into force.
PREPARING PART 1 OF YOUR ABS: YOUR ADVISER BUSINESS
Overview of Part 1
Part 1 must describe your entity’s adviser business and give a context for Part
2. Part 1 must, at a minimum, contain the expected information
outlined in this section.
You may decide on the form and structure of your ABS, but complying with the
following suggestions will minimise Commission queries:
• Write your ABS in a way that helps your governing body review
– and the Commission understand – your
business from the
perspective of complying with the Financial Advisers Act
• Keep ABS material to a high level where possible, so it is useful
as a governance document
• Involve your business managers in preparing your ABS, make sure
it’s sponsored by senior management and your governing
body, and that the
latter approves it. Note in your ABS who has approved it
• Focus on the Act’s objectives: how the QFE promotes sound
financial advice and encourages public confidence in industry
professionalism
• Address all financial adviser services for which your entity
intends taking responsibility
• Give enough information to allow us to assess your
entity’s potential impact in its markets
• Include any changes to the business in progress or planned
• Describe any assumptions your ABS makes where expected changes to
the Act, the Code, or other law, might create uncertainty
• Give supporting quantitative information to show the relative
importance of various business areas. If exact quantitative
information is
unavailable, give the closest information you can to enhance understanding of
your financial adviser service.
Information should be the latest
available (include its date) and, if for a period, should ideally cover a year
(state the
period it covers). You may use forecast information, particularly if
changes are expected.
Structure
Principles
Your ABS should:
• explain your QFE’s structure and key internal and external
relationships
• explain any entity-level conflicts of interest.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• whether the QFE expects to appoint nominated representatives, and
the nature of any significant groups of nominated representatives
(such as
where a large number have one employer)
• entity-level arrangements that might give rise to conflicts or
pressures on advisers (such as commissions the entity
receives from
third-party suppliers, fee structures and group relationships).
Suggested information
The following may help your ABS explain the QFE’s structure:
• describe the entity’s organisational structure, including the
location of key managers and other roles, and focus
on responsibilities
for activities covered by the Financial Advisers Act
• describe the relationship between the entity and any group entities
and holding companies relevant to its financial adviser
service (such as issuers
or employers of nominated representatives), plus the regulator of these
entities, if any
• describe any outsourcing significant to understanding your
financial adviser service (such as call centres).
Expected information
We expect your ABS to address this principle by covering, where
relevant:
Suggested information
The following may help your ABS describe the QFE’s products and
services:
• the proportion of the business providing financial adviser services
• the proportion of the business represented by financial planning
services
• whether the entity and its advisers handle client money or
property.
Suggested information
The following may help your ABS describe the QFE’s customer
types:
• profile the QFE’s advisers, documenting the category 1 and/or
category 2 product types on which they advise.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• the numbers of advisers who will be a) authorised financial
advisers b) advisers on category 1 products who do not have
to be authorised,
and c) category 2 advisers
• the numbers of a) employee advisers, and b) nominated
representatives.
Suggested information
The following may help your ABS profile the QFE’s advisers:
• the adviser split according to their service or product ranges
(such as where an entity has distinct sales forces or advisers
operating in
different departments and markets; explain which deal with retail customers and
whether these adviser groups provide
products from one provider, choose from a
product panel or have an unrestricted product choice)
• the number of advisers providing financial planning services
• the national geographical spread of adviser locations.
• show how much advice your entity provides through what
channels.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
Suggested information
The following may help your ABS describe the QFE’s business
channels:
• the split of volumes/advisers by channel
• the split of services (eg guidance/advice/planning services) by channel.
An overview of Part 2
Part 2 must describe your entity’s governance and compliance
arrangements. It should explain how the business will take frontline
compliance responsibility for advisers’ professional conduct and
competence
(in relation to all its advice processes).
You may decide on the form and structure of your ABS, but complying with the
following suggestions will minimise Commission queries:
• Provide an overview of compliance infrastructure, processes and
people, and describe any reliance on third parties
• Describe your adviser business’s governance and
compliance arrangements. Businesses will implement processes
and controls
in different ways, depending on the nature, scale and complexity of their
services
• Explain how adviser professionalism is embedded in the QFE’s
overall governance and culture
• Detail the management role responsible for key processes and
controls, and describe the information used to monitor them
• Set out how you propose to check your business and your advisers
are operating according to plan and conforming to the standards
set out in your
ABS
• Recognise any gaps and explain how these will be dealt with and when.
Some process improvements may not have been fully implemented yet, in which
case your ABS should say so and point out where processes
are new. One approach
is to set out a “Path to Compliance” that indicates how long
implementation will take and how you
propose to monitor it
• Describe any assumptions made where uncertainty is due to expected
changes to the Act, other legislation or the Code.
Part 2 of your ABS must include a comparison of your business’s conduct
and competence requirements with those in the AFA Code
of Professional Conduct,
and, if they are not the same, fully explain why not.
The Act allows a QFE to set its own standards of adviser conduct
and competence. Using the Code as a benchmark allows
us to promote regulatory
neutrality and assess an entity’s capacity to take responsibility for its
advisers’ conduct.
People, Processes, Professionalism
Principles underpinning QFE governance and compliance arrangements are
grouped under these three headings.
People
A QFE must ensure its advisers exercise appropriate care, diligence and
skill, and operate according to appropriate conduct and competence
standards.
The QFE’s governance and compliance arrangements should ensure:
Processes
A QFE’s processes should enhance professionalism, be appropriate to the
staff using them, and be well controlled and monitored.
The QFE’s governance and compliance arrangements should ensure:
• Record keeping: it retains appropriate, easily accessible
records.
Professionalism
A QFE ensures professionalism by means of an appropriate culture, compliance
assurance arrangements and good governance.
The QFE’s governance and compliance arrangements should ensure:
• It recruits people with appropriate ethical behaviours and
skills.
Guidelines for addressing the principle
• Checks are part of the recruitment process so that
advisers meet registration or authorisation standards, as far
as these are
known.
• New advisers are assessed against the standard of knowledge, skills
and competence required for their proposed roles, and
their adviser
qualifications are checked.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• an overview of training and standards for each group of adviser
roles
• the number of trainees, advisers and supervisors in each role
Expected information on competence: “if not, why
not”
The Act allows QFEs to set their own competence standards for unauthorised
advisers, but the Commission uses the Code as a benchmark
to promote
regulatory neutrality.
Your ABS must therefore compare the entity’s own competence
requirements with those of the AFA Code of Professional Conduct,
and, where
these differ, fully explain why the entity’s are more appropriate. This
will help us consider your entity’s
capacity.
Your entity’s standards may differ from the Code’s
because:
• Code standards are irrelevant to an adviser’s work
• Your entity has not had enough time to educate advisers
to the appropriate level and has interim arrangements
(such as greater
supervision) until they reach that competence standard
• The work advisers do in the entity differs from what advisers outside the
QFE do.
Guidelines for addressing the principle
The Act requires a QFE to:
• ensure its advisers are registered or authorised, as necessary
(s76)
• keep an up-to-date list of its authorised financial advisers
(s76)
• keep a list of its nominated representatives
(s77).
All authorised financial advisers must meet the Code’s skills,
knowledge and competence requirements (s37).
Further guidelines for addressing the principle
• Every adviser role carries a set level of skills, knowledge and
competence that, where applicable, takes account of
Code requirements.
Usually, these will be provided by a training programme, assessed to ensure it
has delivered the required level.
• Individual adviser’s training and support needs must
be assessed, recorded and addressed, and their progress
monitored.
• New advisers must meet a set standard to become fully fledged advisers.
The standard takes account of Code requirements where applicable, and
assessment determines whether advisers have reached the
requisite
level.
• Advisers are trained and supported to ensure they understand their
Act obligations.
• Advisers are trained on relevant new products or processes, and, in
the case of significant changes, assessed to ensure
they have achieved their
learning goals.
• Standards are in place for continuing professional
development that, where necessary, meet Code requirements, and
standard
compliance is monitored.
• It actively supervises advisers so they behave
appropriately, provide suitable advice and comply with the QFE
processes.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• an explanation of your approach to supervision.
Guidelines for addressing the principle
• Appropriate criteria are in place for acceptance as a
supervisor.
• Supervisors have the appropriate level of skills,
knowledge and competence for the role and receive
initial and ongoing
training and support.
• Supervision properly covers the financial adviser service,
targets risk areas (for example, particular advisers
or products) and is
suitably regular.
• Supervision processes are clearly set out, including ways of
dealing with particular issues, and supervisors are clear about
their
role.
• Any supervision result trends are identified and appropriate action taken
(such as changes to adviser training).
• Supervisors are also monitored and managed to ensure they
exercise care, diligence and skill.
Supervision is a key control over adviser behaviour and ensures they operate
in accord with processes. Supervisors themselves are
as important, in terms of
their recruitment, training, and reward, as supervisor processes.
• It identifies advisers who do not meet the required standard and
takes appropriate remedial action.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• an explanation of your approach to identifying underperforming
advisers
• the proportion of advisers who are underperforming in terms of
advice quality or compliance
• number of disciplinary cases relating to advice quality or
compliance.
Guidelines for addressing the principle
• Advisers who do not meet required standards or deliver the right
customer outcome are identified.
• Customer feedback and complaints information are part
of the identification process.
• Reasons for poor performance are considered, a plan and timetable
drawn up to address the problem, and adviser progress
monitored.
• Appropriate measures are implemented where necessary to protect
customers from underperforming advisers.
• Disciplinary action is taken on unacceptable behaviour or
insufficient progress in reaching an acceptable standard.
• The QFE co-operates with the Commission on any investigation of a
complaint about a current or past adviser, and with the
Disciplinary Committee
on any proceeding and any resulting action the Commission takes.
We will focus on under-performance in the areas of professionalism
and compliance.
Reward covers a range of ways to influence behaviour, including remuneration,
monetary and non-monetary incentives, and promotion
and preferment.
Compliance principle
The QFE should have governance and compliance arrangements that
ensure:
• Its reward structures and practices drive appropriate adviser
behaviours and advice standards.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• an explanation of how key reward structures address
compliance and quality issues
• an explanation of the balance of salary and bonus/commission in
retail adviser remuneration – for an average adviser
and for the most
successful adviser.
Guidelines for addressing the principle
• Reward structures incentivise professionalism.
• Adviser remuneration structures only reward sales/profit-oriented
targets when compliance and advice quality requirements
are met.
• Advisers do not depend on volume-based bonuses to earn a living
wage.
• Non-financial rewards, such as prizes, recognition events and
promotions, also require advisers to meet quality and compliance
standards.
• Management adheres to the QFE’s reward guidelines; for
example, bonuses are withheld and quality criteria are
not over-ridden.
• Performance and reward structures for managers of adviser
groups include compliance and advice quality measures.
• It does not mislead or confuse customers or engage in deceptive conduct.
Guidelines for addressing the principle
The Act requires:
• a QFE or adviser to refrain from advertising a financial adviser
service in a misleading, deceptive or confusing way (s35
and 48)
• a QFE or adviser to refrain from any conduct in relation to a
financial adviser service that is misleading, deceptive or
confusing (s34 and
s47)
• marketing materials to use the term sharebroker only if the adviser or QFE
doing the marketing is a member of a registered exchange (s36).
Further guidelines for addressing the principle
• An entity must not use its QFE status as a marketing tool or imply
its QFE status represents Securities Commission approval
of the entity
or its advice.
• An appropriate approval process exists for marketing and
customer-facing materials to ensure compliance.
• Staff preparing marketing materials are aware of the requirements
and understand the approval process.
• Records are kept of marketing materials and approval
received.
• It supports advisers in giving clear, timely information that helps
customers make informed decisions.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• an explanation of the process for helping advisers
with required disclosures
• an explanation of the approach to understanding and addressing
customer information needs.
Guidelines for addressing the principle
• The QFE discloses to customers the information the Act requires
(s26).
• Processes and training help advisers comply with the Act’s and
the regulations’ disclosure requirements (s21-31),
including requirements
for format, content and timing. Processes help advisers comply with relevant
Code requirements.
• Information is not misleading, deceptive or confusing and is up to date
(whether the Act requires it or not).
• The customer is given information when they need it in a suitable
format (written or oral) including during sale or advice
and, if appropriate,
during ongoing servicing, or proactively if it changes.
• Information provided covers matters relevant to the individual
customer, in language and at a level of detail customers
can understand.
• Potential adviser conflicts are identified and disclosed,
managed or avoided.
• The quality of customer information is periodically assessed and
improved as necessary.
The regulations will cover some elements of customer information, but
customer needs go beyond the regulations, depending, for instance,
on individual
circumstances and products proposed. Information also helps customers form
realistic expectations.
• Its processes help advisers consistently recommend or guide
customers towards suitable products.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• an explanation of your approach to ensuring advice is suitable for
retail customers, including any differences in the approach
of various adviser
groups in the QFE. Specifically address how you deal with suitability in the
context of a financial planning service,
affordability of credit (responsible
lending) and insurance exclusions.
Guidelines for addressing the principle
• Processes take account of relevant Code requirements.
• Enough information is collected to understand customer requirements
(within the scope of the service being provided).
• Advice has a reasonable basis and is supported by analysis.
• Advice is suitable, with recommended products being fit for purpose
and the most suitable available to the adviser.
• Advice is appropriately explained and recorded.
• Processes allow for situations when advice should not be
given or a referral should be made, and the culture
supports both
options.
• A QFE operating a sales process that only gives customers
information (and is, therefore, unregulated) ensures process design
is
appropriately approved, staff are trained on its acceptable limits so they do
not offer financial advice, and staff are monitored
to ensure they adhere to
this process and its limits.
• A QFE operating an internet or paper-based sales process that
includes customer guidance has that guidance approved
by an
appropriately qualified adviser.
• It delivers agreed products or services, and meets
reasonable expectations for ongoing services.
Guidelines for addressing the principle
• Where the adviser or QFE is responsible for implementing the
agreed guidance or advice, that is done accurately and promptly.
• Appropriate adviser resource and processes exist for
responding to customer enquiries and advising on variations
or renewals of
existing products.
• Processes are in place to deliver on any promises made to customers
about future services.
• A customer is given any necessary information and timely assistance
if he/she decides to change their adviser.
• It has an internal process for addressing customer complaints and
helping advisers learn from them.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• your entity’s definition of complaint and an
explanation of its internal complaints process, including whether this is
independent
• the number of complaints received and upheld in the last
12 months together with any “hot spots”
and actions taken
• the proportion of complaints decisions (as a percentage) overturned
by any Ombudsman or dispute resolution scheme
• any arrangements in place to ensure the entity can pay customer
compensation, if awarded (such as capital, professional indemnity
insurance,
allocated funds).
Guidelines for addressing the principle
• Internal processes comply with dispute resolution scheme
requirements.
• Independent investigation processes for complaints exists, if
possible.
• The quality and timeliness of complaints handling are
monitored.
• Complaint information, both internal and from dispute resolution
schemes, is analysed to identify any information,
training and process
improvements, and any necessary action is taken.
• Complaints information is used to improve adviser performance,
preferably at an individual level.
• The QFE co-operates, as far as possible, with other entities to
resolve customer complaints.
• The QFE co-operates with the dispute resolution scheme or the
Commission in the investigation of complaints.
• It has robust compliance arrangements, including those relying on IT
systems or outsourcing.
Guidelines for addressing the principle
• Where a QFE relies on IT systems to support advisers, it has
appropriate backup arrangements.
Where a significant part of the financial adviser service is
outsourced:
• due diligence, management and monitoring systems exist to deal
with compliance matters, including any changes, and action
is taken to address
any identified failings
• the Commission has appropriate access for carrying out its
compliance assurance function
• periodic reviews of outsourcing arrangements address compliance
performance.
• It retains appropriate, easily accessible records.
Guidelines for addressing the principle
• Records demonstrating compliance with requirements are made and
kept.
• It has a high-level person or body responsible for overseeing
adviser professionalism and compliance.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• A description of your reporting and governance framework, including
an explanation of the role and composition of the governing
body
• An explanation of the ABS’s role in the financial
adviser service governance framework, which should include
how the ABS was
prepared, reviewed and approved, and senior business management’s
involvement
• The ABS reflects the results of the latest framework review.
Guidelines for addressing the principle
A QFE must ensure that it, its employees and nominated representatives comply
with the Act and QFE terms and conditions.
Other guidelines for addressing this principle:
• have a clear reporting and governance framework for
adviser professionalism and Act compliance matters
• the governing body reviews, considers and approves the annual
report to the Commission (required by s77(1))
• the governing body considers, at least annually, the
adequacy and robustness of processes and controls, compliance
assurance and
governance framework for encouraging adviser professionalism and ensuring Act
compliance
• the governing body reviews, considers and approves the ABS at
least once a year.
The Commission expects the governing body chosen by the entity to include
some senior executives, such as those responsible for business
lines associated
with financial advice, as well as relevant legal, risk or
compliance representatives.
• Its culture supports adviser professionalism and
compliance, and achievement of suitable customer outcomes.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• any steps senior management have taken to sponsor and
support an appropriate culture (if the ABS does not address
them
elsewhere)
• the approach to managing the potential effect of any entity-level
conflicts of interest on advisers and their advice (such
as group product
provider relationships and entity level commission arrangements).
Guidelines for addressing the principle
The Act requires that:
• A QFE or adviser refrain from any conduct to do with financial
adviser services that is misleading or deceptive or is likely
to mislead or
deceive (s34 and 47).
Other guidelines for addressing this principle:
• management actively supports professionalism in their messages to
staff
• management moves quickly to address customer outcome issues
• management allows enough time and resources for training and
quality checking
• management is conscious of potential entity-level conflicts of
interest and takes steps to avoid or manage them, including
through disclosure
and segregation of duties
• an independent whistle-blowing procedure operates
• the QFE deals with the Commission openly and honestly,
voluntarily reporting any significant compliance issues.
• It has appropriate arrangements for challenging and testing the
adviser compliance framework and its outcomes.
Expected information
We expect your ABS to address this principle by covering, where
relevant:
• a description of the entity’s approach to testing, including
any risk-based approach
• a description of the expected work plan and its governance
oversight, along with resources allocated to it, including
the number of staff,
skills and experience
• an explanation of how the approach allows findings to be
independent, along with how and to whom findings are reported and
any necessary
actions determined and tracked.
Guidelines for addressing the principle
• Challenging and testing address the design and operation of
processes, controls and management information, and also consider
the outcome
for the customer.
• A risk-based approach to compliance assurance.
• A plan is approved by the governing body and its progress
monitored.
• Significant findings are reported to the governing body and
remedial action is followed up, including any action necessary
for
customers.
• Compliance assurance is, as far as possible, independent
of line managers responsible for the process and controls
being
assured.
Assurance is likely to go beyond the day-to-day controls operated by managers
directly responsible for key processes to include more
in-depth and independent
periodic challenges, such as arrangements for separate compliance monitoring
teams, internal audits or the
commissioning specific external work.
Entities may wish to refer to the New Zealand Standard on Compliance
Programmes (NZS/AS 3806:2006).
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