In its submission to FASEA around the guidance, which was released for consultation last month, the AFA said the new guidelines did more to hinder than help advisers in interpreting the code.
“We have been advised that the latest guide does not replace the previous documents, but supplements them. Therefore, we now have three documents and 90 pages of guidance on the code of ethics,” the association said.
“This is overwhelming for financial advisers, particularly at this point, as there are so many other factors for financial advisers to contend with.”
The AFA submission underlined the association’s continued opposition to Standard 3 in its current form, urging the authority to revert to the wording originally released in the draft code of ethics legislative instrument in 2018 – that “you must not advise, refer or act in any other manner if you would derive inappropriate personal advantage from doing so”.
“When the code was released in February 2019, with Standard 3 placing a ban on all conflicts of interest or duty, the AFA argued that the revised wording made the Standard unworkable,” the AFA said.
“Subsequent guidance from FASEA has not been successful in shifting our concerns on Standard 3 and we remain convinced that in its current form, Standard 3 is not practical.
“It was extremely disappointing that FASEA did not at any stage consult on the current wording of Standard 3, and had there been consultation, it would have avoided the problems that have since emerged.”
In its submission to FASEA around the guidance, the FPA also pointed to the fact that “Standard 3 is crafted as an absolute prohibition to act if there is a conflict of interest” as likely to cause ongoing problems in a practical sense.
“As has been repeatedly pointed out, conflicts are common in all professions and it is similarly common for other professions to evaluate the materiality of a conflict and manage it appropriately,” the FPA said.
The FPA said inclusion of a “reasonable person test” in the new guide would go some way to allowing advisers to assess whether a conflict was manageable or not, but said a black and white interpretation of the code’s wording by regulators could still put advisers at risk.
“The FPA supports the inclusion of [the] test as it will provide financial planners with enough flexibility to manage immaterial conflicts of interest without having to terminate a client relationship,” the association said.
“However, the FPA remains concerned that the wording of Standard 3 remains unchanged and that this guidance may or may not be considered or followed in decisions by a disciplinary body or an EDR scheme.
“The FPA strongly recommends that the text of standard three be amended to reflect the reasonable person test and the flexibility that it allows in looking at the materiality of a conflict of interest.”
I just cross my fingers that I’m not the test case that highlights the absurdity of the guidance.
It’s obvious to anyone who operates in the industry, yet it seems not until there is a clearly detrimental outcome to someone will it be addressed.
Keep your head down people.
Easiest solution would be to unwind FASEA. Those who have done exam get cost refunded and auto meet their CPD requirements for this year. I dont see any disadvantages to this.
Would still need to change the Corporations Law though. The exam requirement is set out there.
Might be able to get rid of FASEA in due course, but not the exam.
6 sittings available next year and then that’s it. Either you’ve done it and passed by end of 2021 or you’re gone.
Once again a clear example of some well meaning but totally Ill informed and arrogant sector of the legislators trying very badly to expound a much needed guidance that is clear and concise. When the total industry including compliance and associated legal people cannot come up with clear reasoning, what hope have the rest of us got. Someone with a brain should jump in with a clear direction, and that excludes FPA and FASEA who has shown total disregard and incompetence to date.
The main issue as I see it is none of these people are actually practicing Financial Advisers let alone meeting the new qualifications to be so – so why are they telling Financial Advisers how to be Financial Planners?
Seems to me they are qualified at nothing and surprise surprise it is a complete failure. Perhaps the people at FASEA and FPA should stop trying to help out us Financial Advisers and go back to their chosen profession which I am sure is missing their expertise.
Just throw these codes out and start again.
Ensure FASEA have nothing to do with it, they’ve proven themselves incompetent.
Yes, standard 3 is quite simple. [b]Every[/b] form of remuneration fails standard 3 as a reasonable observer would say that it could influence the adviser: Fixed fees could get the adviser to do as little as possible, asset based fees could get the adviser not to recommend direct property as an investment, hourly rates could lead to padding etc etc.
The whole code is laudable but very poorly drafted and I wonder how much of it will survive in court. Interestingly I have seen a number of compliance departments interpret it in ways that are just weird and internally contradictory – i.e. fulfilling one of the standards in such a way that the principles are violated as one example.
FASEA is trying to write a common sense guide aimed at individuals that just want “advice” but the people/groups that need to follow that guide have a symbiotic relationship to products and are so tied to products that ending those relationships would spell certain death and doom. Sourcing the best products without trying to clip the ticket or get some of that action or even get discounted services from a licensee is a struggle for most advisers it seems. At the end of the day The Corporations Law and all the rest of the red tape, makes it completely impossible to have a business model where ultimately all you’re doing is providing advice.
Tom, there is a lot of truth in what you write. The recent IOOF retention initiative through discounted licensee fees (50%?) is a good example – IOOF didn’t spell out what it will want in return for receiving less than the market rate but the advisers will be well aware what they are accepting.
Yes, the current regulatory thicket combined with spooked compliance departments means that you cannot get it right and you could be taken out of business whenever the regulator comes calling. It means everybody will be tempted to make hay now and goodwill is for the suckers or the courageous ones, take your pick.
Even better deal than the 50% reduction in licensee fees being offered by IOOF which you speak of is that offered by Industry Super – they pay 100% of your office costs, 100% of your staffing costs, 100% of your Para Planning costs, 100% of your ongoing training costs, 100% of your salary (plus in many cases a bonus) and 100% of LICENSEE COSTS. Not bad. So, what do you reckon is they want the adviser to do?
AFA finally standing up is one small area for advisers