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.
The AFA is doing a good job trying to articulate and resolve the deficiencies of a difficult and inflexible set of rules and guidelines that are strangling the advice Industry.
Politicians are like many people, in that they are time poor, generalists rather than specialists and are usually out of their depth with most subjects.
Bearing this in mind, a priority for Politicians, is to be SEEN to be doing something, while passing the ball to specialists like “”FASEA”” to do the nitty gritty stuff.
What we end up with is what we have today. A total fiasco.
It is probably not a good idea to fall into the trap of continually saying “conflicts of interest” which can be managed.
How does that sound to the general public and Politicians who do not understand what that means?
It is like a doctor saying to a patient, I am going to give you a immunisation injection and it could give you a very bad reaction, but I am going to handle this potential conflict of your interest by having the hospital emergency ward ready, just in case.
All the doctor has done is create stress that for 99.99% of the time is irrelevant.
So for our Industry, rather than saying yes we have a conflict of interest, which sounds bad, why not say, there are different ways a service can be provided and there are different ways it can be paid for, which are —-.
People only hear what is quickly presented, that is why there are things called headlines.
The trap our Industry continually falls into, is to let vested interest groups ambush us and our response has in the past, always been weak or too complicated.
If as an Industry we want to survive and thrive, our representative bodies need to, in plain English, articulate and question the supposed issues, then like a dog with a bone, don’t let go if we are right.
The best form of defense is attack.
Demanding, not asking for clarification and proof, will put us all in a stronger position and if the Governments intention is BID, that can only occur if there are sufficient advisers around to look after and provide services to all Australians, which can only be done if expenses are met and a profit can be made.
Well said Jeremy. We need consistent simple language (sounds like SOA requirements right?), and a consistent, relentless petition for the future of, not just our profession, but our clients’ best interests! How many thousands of people will not get helped to a better future if our profession withdraws to only the super rich? The divide will expand, and the everyday mum and dad that most of us support will not be able to access quality advice, opting for big insto’s online calculators alone (Robo-but-not-robo-something?).
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