- Agree (86%)
- Disagree (11%)
- Not sure (3%)
Our latest poll is seeking to take the temperature of the adviser community around the current approach to conflicts of interest within FASEA’s Code of Ethics.
At the end of last week, FASEA released guidance notes around its Code of Ethics for financial planners and advisers – a code to which all authorised representatives must adhere from 1 January 2020 (see: FASEA Releases Code of Ethics Guidance).
These guidance notes have been met with strong opposition by the AFA, which maintains the current wording of Standard 3 and the guidance notes accompanying it go beyond FASEA’s remit (see: AFA Slams FASEA…).
There are two perspectives from which to consider this question:
Perspective One
This perspective relates to how an industry becomes a profession. Some ethicists, including FASEA Board member, Dr Simon Longstaff AO, argue that one of the indicators synonymous with a profession is where the organisation seeks to apply standards that sit above those required by law.
As pointed out by the AFA this week, even the Corporations Act only requires conflicts of interest to be managed, and the law specifically permits life insurance commissions and other conflicted arrangements. This means that FASEA Code of Ethics Standard 3 is definitely set at a higher benchmark than that required by law.
Perspective Two
Perspective two welcomes FASEA to the real world. This perspective, held by the AFA, holds that – in the real world – conflicts of interest exist everywhere, in any profession, and it’s the responsibility of both individuals and organisations to manage those conflicts when they arise. In the case of the financial advice profession, this management of any conflicts of interests that exist require that the client is ultimately provided with advice that is in their best interests.
As is often the case with our polls, the devil can be in the detail. For example, perspectives one and two are not necessarily mutually exclusive. In this case, it may come down to the guidance notes that will serve to inform execution of the Code of Ethics. But at the moment, the AFA is seeing potential danger and more troubles ahead for advisers, given the language in these notes released last week.
For a sector that’s been pushed from pillar to post over recent times, this is yet another issue to be added to the overflowing catalogue of issues that advisers will be required to address and resolve.
For the time being, it’s over to you for your considered thoughts, and we’ll report back to you next week…
A code of ethics, is something that we all inherently understand.
It is something that we were taught from our parents, teachers and mentors.
Unethical people will always be around and will always push the boundaries.
The regulations ALL Australians should be forced to abide by, comes down to one word.
Accountability.
That is the only way we can move on and get on with Business and life.
Instead, we have a blame game of, “let’s target the entire adviser population” for the sins of a few, then put in unworkable regulations and red tape to smother Business.
The question and answer is simple.
Has a client been impacted negatively by the advice? If so, to what degree?
If the impact is minimal, have a simple process to quickly remedy.
If the advice severely impacts the client, that adviser is penalised.
If an organisation creates the issue, then the people who allowed it to occur are punished.
Instead we have a system that the minority cause mayhem for the majority of decent, honest, ethical people.
The current army of auditors, Government bodies and self serving entities, are destroying any opportunity to build a profitable and viable Business model, as those entities never have and never will understand what it takes to run and build a Business, including the stresses of employing people whose actions can allow them to walk away with little accountability for what they have done and the boss is left to carry the burden and the risks.
Hi Jeremy
Another well structured insightful comment. Just one thing to add…whenever anyone engages a lawyer, the first thing the lawyer asks is what are the damages? I thought this question is quite important becasue unless you can prove the extent of the damages, then why are you talking to a lawyer. Your reference to assessing the impact to the client is very prudent and begs the question…why can we operate the same way? These standards are paralysing the Risk industry
Perspective One – Clients come in for free initial interview to discuss their insurance needs. Adviser indicates that they are conflict free and can provide advice on a fee for service basis. A fee of $750 is quoted in order to conduct a needs analysis and gather existing details to satisfy BID safe harbours. A further fee of $500 is quoted to complete a health/occupation/lifestyle pre-assessment to multiple insurers. At this stage it is either apparent that insurance terms are not available or are different to current cover ie exclusion. An advice fee of $1,200 is quoted to provide advice to investigate whether it is in Best Interest to replace policies with no exclusions or if no terms are likely to advise client to retain current cover. Adviser has received $2,450 in fixed fees at this stage, if advice to retain current cover client has received advice to “do nothing”. Is it ethical to charge the client for advice where the likely outcome is to “do nothing”? I say likely as it is only based on a pre-assessment and not an actual underwriting decision which would require an application and therefor advice. An additional fee of $750 is quoted for the application and underwtiting assistance to attain the underwriting decision. Once the underwriting decisions are made an additonal advice fee of $500 is quoted to provide a Record of Advice that indeed the preassessments were accurate and no cover available. A total of $3,700 to professionally advise and meet all of the BID and FASEA requirements for no change to clients current circumstances. A conflict exists to charge a professional fee where the end result would likely be no difference to clients current circumstances, however this can not be known for sure until going through the whole advice process.
Perspective Two – Same clients, same first interview. Clients OFFERED the FEE for SERVICE option as well as a Commission Option. It is explained that the Commission Option will cover our minimum professional FEE for SERVICE as well as an additional SUCCESS FEE for implementing cover that meets the BEST INTEREST requirements. The trade off for the additonal SUCCESS FEE is that the minimum PROFESSIONAL FEE for SERVICE will be waived if no cover can be implemented to improve their situation…AKA NO WIN NO FEE. Is it ethical to charge a success fee for actually improving a clients position? Does it matter that the fee is paid by the insurance company as a commission if all commission rates are the same? A conflict exists not to offer to provide advice after the outcome of the pre-assessments if the likely result will be no cover offered or offered to such an extent that would not meet BID to replace current cover.
I offer both payment options to clients (including explanation of lower premiums for FFS although annual review fees would apply and should any further advice be required including change of product provider that additional FFS would be applicable) and have to date had 2 weathy clients opt for the full FFS arrangement.
RIP Life Insurance Advice Dr Longstaff…Is it ethical to create regulations that will almost certainly restrict access to professional Life Insurance advice from non-aligned advisers (of course they are not independant as their fees are paid from commissions even though all commission rates are standardised) with the end result being the public either not seeking professional advice due to the cost or seeking it from the cheapest supplier of product…DIRECT insurance providers via GENERAL ADVICE or INTRAFUND advice through their Super Fund. Most likely end result – Increased Underinsurance, less product competition, generally inferior policy terms and surprisingly more expensive premiums for the privilege.
Comments are closed.