FASEA has released an updated draft of its Financial Planners & Advisers Code of Ethics 2019 Guide, which includes changes to its language in Standard 3 regarding adviser conflicts of interest.
The October 2020 version of the Authority’s Code of Ethics guide includes a statement in relation to Standard 3 which notes the Code “…does not seek to ban particular forms of remuneration, nor does it determine that particular forms of remuneration will always give rise to an actual conflict of interest or duty.”
This statement was not present in the October 2019 version of the Code of Ethics, but it was included in the preliminary response document the Authority released in December 2019, following heated industry feedback (see: AFA Launches Stinging Criticism Around FASEA Code of Ethics and …Green Light for Risk Commissions).
…certain forms of remuneration will always fail to meet the requirements of the Code of Ethics
Having noted the Code does not seek to ban particular forms of remuneration, the new version still cautions advisers that they “…should remain open to the possibility that certain forms of remuneration will always fail to meet the requirements of the Code of Ethics.”
Now absent from the October 2020 draft Code version, but included in the 2019 draft is a note that the Code’s explanatory statement “…indicates the primary ethical duty in this Standard [Standard 3] is that, if you have a conflict of interest or duty, you must disclose the conflict to the client, and you must not act.”
Like the October 2019 version the latest draft guide adds that advisers “…will not breach Standard 3 merely by being a duly remunerated employee of an entity that lawfully provides retail financial advice and services, provided the provision of that advice and services is in the best interests of the client and complies with the other provisions of the code.”
…the draft guide provides an explanation of the intent and application of the Code’s values and standards…
FASEA says the draft guide provides an explanation of the intent and application of the Code’s values and standards, noting that it uses fundamental questions to help illustrate the code and highlights the requirement for advisers to exercise their professional judgement in the best interests of their client guided by the values and standards of the code.
One question posed in the guide, by way of example, asks:
“As an adviser, I receive remuneration (such as insurance or timeshare commission, brokerage fee, asset-based fee, flat fee for service etc.). By receiving this remuneration do I breach the provisions of the Code of Ethics?”
The answer given in the guide states:
“Standard 3 does not ban any form of remuneration, nor does it condone it. In the context of a specific client scenario, before you advise, refer or act you should exercise your professional judgement to determine whether the remuneration gives rise to a conflict. You should satisfy yourself that the remuneration allows you to meet the provisions of the Code including that:
- The advice and product recommendation will be in the best interests of the client
- The remuneration received will be fair and reasonable and represent value to the client and be fully understood by the client
- The client will understand the benefits, costs and risks of the advice
- The advice and fee structure will be appropriate for the client; and in making this assessment you should consider whether a disinterested person, in possession of all the facts, would reasonably conclude that the remuneration could lead you to prefer the interests of someone (including your own) over the client’s best interests
In a statement accompanying this week’s update, FASEA Chief Executive, Stephen Glenfield, says “FASEA understands that advisers and other stakeholders are seeking additional support in understanding the practical application of the Code of Ethics and welcomes stakeholder feedback on this draft guide.”
Click here to access the updated draft Financial Planners and Advisers Code of Ethics 2019 Guide.
Feedback and submissions are open until 2 November 2020.