The Jersey Financial Services Commission has  published a Consultation Paper proposing revised Codes of Practice for Investment Business (IB Codes) with the aim of improving the quality of advice offered to retail investors.

The publication of the Consultation Paper is the penultimate stage of the Commission’s Review of Financial Advice (RFA). The project, which began in August 2011, follows a similar exercise undertaken by the UK’s former Financial Services Authority entitled the Retail Distribution Review (RDR). The Commission invites comments and responses to the Consultation Paper by 7 November 2013. The new IB Codes will come into force on 1 January 2014.

The aim of the RFA is to raise the professional standards of investment advisers, and reduce the conflicts of interest which are found in commission based remuneration for adviser services. The Commission seeks to achieve this aim through four changes in the IB Codes and the revision of the Guidance Note on Professional Qualifications.
The defined term of “the client”, is sub-divided into Retail Clients and Professional Clients with respect to registered firms giving investment advice.
All registered firms offering investment advice will be required to classify their clients as either Retail or Professional.
Employees of firm providing investment advice to Retail Clients will have to hold Qualifications and Credit Framework level 4 or above, or level 3 where the employee has undergone the appropriate gap-fill training and assessment. To assist registered firms in identifying acceptable qualifications for their investment employees, the Commission has revised its Guidance Note on Professional Qualifications, which lists those appropriate for those employees involved in the managing, dealing and advising of investment business.
Advisers of Jersey resident Retail Clients will no longer be allowed to be remunerated for their services by commission payments from product providers.

There are few exceptions to the changes to the IB Codes. Employees providing advice in connection with long-term insurance contracts, where the amount paid out does not depend on investment performance, will be exempted from the qualification requirement and will also be allowed to charge commission. Advisers of non-resident Jersey Retail Clients will be allowed to charge commission for their services. Advisers of Jersey resident Retail Clients will be allowed to receive trail commissions payments on any investment contract that commences on or before 31 December 2013.

The Commission considers that increasing professional standards together with new adviser charging requirements will contribute significantly to one of the Commission’s key objectives, namely the reduction of risk to the public of financial loss due to incompetence, dishonesty or malpractice of investment advisers carrying on business in or from within Jersey. Further, these measures will assist in meeting another of the Commission’s key aims, namely to protect and enhance the reputation of Jersey in commercial and financial matters.

The Commission has sought to introduce various measures in an effort to generally improve the quality of investment advice since the introduction of the Financial Services (Jersey) Law 1998. Despite that, there have been a number of enforcement cases in connection with the provision of investment advice, including the Alternate Insurance Services Limited case, which has been the subject of a public statement by the Commission. Examinations of investment advisers and mystery shopping exercises have also highlighted the need for improvement in the advice process.

Commenting on the launch of the Consultation Paper, Mike Jones, Acting Director of Securities at the Commission stated: “The key driver for the RFA project is consumer protection. A guiding principle of the Commission is to reduce the risk to the public of financial loss. We hope that the proposed changes to the IB Codes will result in higher standards of investment advice and limit the potential for mis-selling”.

John Harris, Director General of the Commission, also added: “We have consulted widely with Industry, who have taken on board the need for higher standards of investment advice and greater consumer transparency, as part of a process to enhance Jersey’s reputation as a leading provider of investment services. We will continue to monitor developments in Industry behaviour following the introduction of the revised IB Codes”.

The Consultation Paper can be viewed here. http://www.businesslife.co/BusinessNews.aspx?id=-jfsc-publishes-consultation-on-review-of-financial-advice