November 12, 2019
The AFA has launched a blistering critique of FASEA’s Code of Ethics ahead of its meeting with the Authority this week.
In a highly-critical and detailed paper, the Association’s GM Policy and Professionalism, Phil Anderson, dissects each of the Codes’ 12 Standards and their accompanying guidance notes, which were only released last month (see: FASEA Releases Code of Ethics Guidance).
The focus of Anderson’s critique (The FASEA Code of Ethics – An Impossible Puzzle) relates to potential issues raised by the wording of the Code and its guidance notes and case studies, around which he and the AFA are seeking greater certainty, greater clarity and less ambiguity.
He says there are deficiencies within the Code and its guidance notes, rendering it unworkable in its current form. For that reason, the AFA is calling for the commencement of the Code to be deferred until it can be ‘re-worked’.
Referring to revenue data recently released by Investment Trends, Anderson says the implementation of the Code as it currently stands will place in doubt – place at risk – 57 percent of practice income, comprising:
- Grandfathered Trail Commissions
- Life Insurance Commissions
- Asset-Based Fees for Service
One of the key issues for Anderson is the Authority’s approach towards conflicts of interest, especially in relation to Code Standard 3, and the confusion this is understood to be causing many in the advice sector:
Standard 3 …is completely inconsistent with the long established requirements to manage and disclose conflicts of interest
“Standard 3 on conflicts of interest is completely inconsistent with the long established requirements to manage and disclose conflicts of interest. Conflicts are very common in financial services and exist in ways that do not disadvantage clients. They cannot be completely eradicated, and an outright ban would be entirely impractical.”
While the AFA’s primary concern relates to how clients will be allowed to pay for the financial advice services that they rely upon, Anderson said the Code, as it is currently worded, “…puts at risk the ability to provide cost effective scaled advice by mandating the requirement for a much more comprehensive understanding of the client’s full current personal circumstances, broader family circumstances and likely future circumstances.”
He warned the outcome of this will be a reduction in both access to financial advice and the affordability of financial advice.
Anderson details a host of other concerns within the paper, which concludes:
“It is unfortunate that the FASEA Board have sought to use this as an opportunity to re-write the law that applies to financial advice, rather than use this as an opportunity to provide sensible guidance to the financial advice community with the development of a Code that is both practical and consistent with the best interests of clients. The financial advice profession has no choice other than to oppose the Code of Ethics in its current form, and ask the Government to deliver a delay in the commencement, whilst these critical issues are resolved.”
Click here to access the AFA’s ‘Impossible Puzzle’ paper.