AFA Slams FASEA Code of Ethics Guidance on Conflicts of Interest

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The Association of Financial Advisers has delivered a stinging assessment of FASEA’s approach to dealing with conflicts of interest as outlined within its Code of Ethics guidance notes released at the end of last week.

The key issue for the AFA revolves around the third of FASEA’s three ethical behaviour standards, which states:

“You must not advise, refer or act in any other manner where you have a conflict of interest or duty.”

The Authority’s accompanying guidance around this standard includes a notation that:

“…the primary ethical duty in this Standard is that, if you have a conflict of interest or duty, you must disclose the conflict to the client, and you must not act. If the client wishes, you may refer the client to another relevant provider if neither you nor your principal will receive any benefits from the referral.”

In a message to members this week, AFA CEO, Phil Kewin, set out the rationale for the Association’s highly-critical response to the guidance notes:

“The AFA has been outspoken in our criticism of the FASEA Code of Ethics, particularly with respect to Standard 3, which was altered from the original November 2018 Code draft to now read  “You must not advise, refer or act in any other manner where you have a conflict of interest or duty”. In our view, and the view of most others outside of FASEA, this is simply impractical. In two subsequent consultations with FASEA we were assured that we should not interpret this standard too literally and the Guidance would be issued to allay our concerns.”

Kewin said the release of FASEA’s guidance notes at the end of last week only served to increase its concerns when the Authority stated:

The making of the Code and changes to education and training standards, reflect community expectations that the provision of professional advice be centred on serving the best interests of the client free from any conflict.

This is tantamount to FASEA creating its own laws…

Kewin’s response: “This is tantamount to FASEA creating its own laws, way above the current law. We simply do not understand how it is possible, when the Corporations Act only requires conflicts to be managed, and the law specifically permits life insurance commissions and other conflicted arrangements, that FASEA could issue a Code of Ethics, that is binding on all financial advisers that appears to completely ban conflicts of interest.”

Kewin maintains that any expectation to totally remove conflicts of interest is simply impractical: “FASEA clearly do not understand the extent of conflicts in financial services, the impact that their removal would have, or appreciate how conflicts are managed to ensure that advice is provided that is in the best interest of the client,” he warned.

…any expectation to totally remove conflicts of interest is simply impractical

While conflicts of interest have been identified as a key area of focus, particularly since last year’s Banking Royal Commission, Kewin pointed out to his members that professional and personal conflicts of interest will arise in many different ways in all walks of life: “…however the key is how you effectively manage those conflicts whilst continuing to act in the best interests of your clients.”

The Association says that in the lead-up to the formal implementation of the FASEA Code of Ethics from 1 January 2020, it will be advocating for change and to ensure greater clarity, including:

  • Seeking a blanket statement from FASEA that the receipt of a commission for the provision of advice on life insurance is acceptable
  • Clarification and greater flexibility with respect to referral arrangements
  • Clarification regarding the need to obtain consent from existing clients as soon as practicable, in order to continue to receive remuneration

Kewin said the AFA will have more to say on this critical issue in the coming weeks.

Click here to read the Financial Planners and Advisers Code of Ethics 2019.



5 COMMENTS

  1. This is something that I flagged on a Facebook Group which is only open to advisers. I pointed out that the Standard 3 effectively bans any commission payment whatsoever. It also bans rewarding good advisers who are paid bonus on revenue share (ie a split of the income they generate their business owner) and I don’t see how we are able to compete if this stands.

  2. I am no solicitor but why are so many of these things being pushed through without due diligence to their effects on advisers as well as the consumers
    Is it let’s do this quickly before the AFA and FOA grow some b+*^?s and put up a real challenge
    If an individual can put a caveat on an issue until it is sorted correctly by a third party ( ie a court of Australia) why can’t the AFA use its position to do the same on the issues that are no doubt set up to immobilise and reduce if not destroy altogether the retail insurance industry in favour of the banks and union controlled Super Funds
    Someone needs to come out with the “big stick” and now or we are all stuffed

  3. Here is an everyday scenario….

    Client presents with a mortgage that they have never reviewed and we can see they are on a comparatively bad rate. We suggest to client that they discuss their loan with a mortgage broker to see if they can source a better deal for them. Mortgage broker is provided with the lead and can only proceed with a deal if they can put the client in a better position. Broker then gets paid a success based commission and pays us an agreed referral split which is disclosed to the client.

    Client is in a better position they would not have been in had we not identified this need, the broker has been paid a commission by the bank to arrange the deal that they would not have had not for us presenting it to them. Yet, under these proposed changes, we’re told we’re not entitled to receive a referral split. The broker is extremely happy with this free marketing arrangement until he realises that in order to address this obvious injustice we will need to set up our own mortgage division under the same roof and he will no longer receive our referrals.

    We were encouraged to stick to wearing one hat and link up with professionals to outsource various parts of service delivery. This works well as mortgage broking, like planning, is becoming increasingly more complex in the delivery of advice.

    No-one except the broker we need to hire and pay is better off under this situation. Can someone explain to me how a the client is worse off under the current approach in this scenario?

    • GT, the rule makers have no understanding of an actual everyday scenario, let alone the knowledge to see beyond their next promotion. They are safe in their lofty towers doing what all unionists do – destroy free enterprise.

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