Approaching ethics with 20:20 vision
It might seem far fetched, but an important task for advisers and advice businesses right now is to plan to hit the new year with clarity on what to achieve next year – having a 2020 vision. And with the 11 October, 2019 announcement from the Government on changes to the code monitoring approach, getting the right focus is even more important. But with some careful planning, a path forward can still be set.
PASS THE FASEA EXAM AND START YOUR EDUCATION PATHWAY
With the majority of advisers yet to pass (or even sit) the Financial Adviser Standards and Ethics Authority (FASEA) exam, a plan should be put in place as to how to do this in 2020. Whilst we have seen the Government announce that it will extend the timeframe for an existing adviser to complete the exam by 12 months to 1 January, 2022, this extension is not yet legislated.
Despite this proposed extension, sitting back and waiting may not be the best approach. For the first cohort of advisers that sat the FASEA exam in June, 2019, the overall success rate was higher than 90% passing. This should give some comfort that passing the exam is achievable.
Like any exam though, the key to success will be about preparation. Today, there are a number of courses and options available to assist advisers to prepare. From intensive workshops to practice exams, and various suggestions on recommended reading, an adviser has the ability to be well-equipped for success.
Beyond this, advisers can really consider how their approach can actually assist to deliver multiple outcomes at once. FASEA have now approved a number of bridging courses in the area of ethics (and particularly the FASEA code) and regulatory and legal obligations. These are two key areas assessed as part of the FASEA exam. The ethics subject is one that every continuing adviser will need to complete, and many will also need to complete the regulatory and legal obligations subject.
A considered approach towards the exam could be to consider completing the Ethics bridging subject (as a minimum first), as it will assist in meeting education requirements, but it will also help prepare for the FASEA exam.
GET ON TOP OF CPD REQUIREMENTS
New continuing professional development (CPD) requirements from FASEA commenced 1 January, 2019. For the majority of advisers, this start date has meant a transitional approach to CPD for the first ‘CPD year’ which for many will be for 18 months (ie from 1 January, 2019, to 30 June, 2020), before moving to an annualised approach.
With nine hours of CPD per annum required in the area of ethics and professionalism, and this being increased to 13.5 hours in the transitional period for many, some have been concerned about how to source the required hours. Completing the mandated ethics subject will cover the increased CPD requirement also (in this transitional year).
If an adviser is subject to the transitional year, it will also be important to plan out other CPD requirements as you wouldn’t want to be left in a position of trying to complete 60 hours of CPD at the busy time of year that 30 June normally presents.
UNDERSTAND HOW TO DOCUMENT ADHERENCE TO THE FASEA CODE OF ETHICS
Despite the Government’s announcement on 11 October, 2019, to no longer pursue the establishment of code monitoring bodies, and to fold their oversight requirements of compliance with the FASEA Code of Ethics into the future single disciplinary body approach (proposed to be operational in 2021), this does not absolve advisers of their requirements to adhere to the Code.
The Code will apply from 1 January, 2020, and as an interim measure, its expected licensees will have a formal responsibility to monitor compliance of their advisers with the Code. Realistically, licensees should have been looking to do this anyway.
There has been a lot of discussion about the Code and how some of the Standards will be implemented. Some of this confusion may arise from the fact that the Standards read as a set of prescriptive rules, but their intention (as explained by FASEA) is to be a set of principles to guide advisers.
To use Standard 3 as an example, which has created a lot of discussion about the ability to act where there is a conflict of interest, it is important to note that there are many and varied types of conflicts of interests that arise every day. Some of these are real, some are perceived. Some are possible, and some are probable. But each is technically a conflict.
An approach to Standard 3 could be to consider that if the conflict is managed in a certain way (e.g. by disclosure as required under corporations law), then do you as an adviser still believe there is a relevant conflict of interest that would prevent you from providing unbiased, impartial advice to your client that is in their best interest? If you believe this is the case, then clearly document how you came to that decision, and then move on and provide your quality advice outcomes to your clients.
It’s important to remember that FASEA is not trying to hinder the delivery of advice to clients – on the contrary they have recognised that the delivery of quality advice is important. Indeed, as part of the Code itself, FASEA recognise that financial advisers are part of the newest profession to emerge in Australia. The Code has an integral role to play in the formation of the profession, as adherence to a Code is a characteristic to differentiate a profession from an industry.
A DEFINING YEAR
The year 2020 represents a defining year for financial advisers. Working together as a collective profession, rather than as a cohort of individual professionals, will go a long way towards rebuilding consumer trust in the act of engaging with an adviser and obtaining advice. And it is the broader, untapped consumer that needs to be considered.
Existing clients seem to be less affected by impacts of negative headlines as they see and value the advice they receive and the adviser they engaged.
Whilst it’s always important to have long-term vision, 2020 is just around the corner so we can’t afford to continue to put things off. Actions will speak louder than words.
Similarly, a short-sighted approach that continues to question the intent of the Code could do long-term damage.
Having a 2020 vision will not only help advisers, but can also free up time to allow advisers to do what they have set out to do – help clients to achieve their goals. And we can’t forget there are plenty of 2020 options for clients too, particularly around proposed changes to superannuation contributions rules due to take effect from 1 July, 2020.
Bryan Ashenden is head of financial literacy and advocacy at BT.
AUTHOR
Industry Expert
Recommended for you
There are multiple reasons for advisers to consider an allocation to gold when building client portfolios, writes Vincent Mortier.
Advisers today have a unique opportunity to position themselves as indispensable allies and trusted counsel to these professionals, providing the safety net they need.
The demand for financial planning businesses for sale isn’t decreasing but firms need to know how to value their business to achieve the best price, writes Fiona Ettles.
The framework of Alternative Risk Premia has developed from an academic theory to a modern practice used by investment managers worldwide, writes Paul Fraynt.
