Did consumer groups drive key changes to Standard 3?

Submissions from consumer groups, including CHOICE, appear to have been significantly influential in the Financial Adviser Standard and Ethics Authority’s (FASEA’s) approach to Standard 3 of its Financial Adviser Code of Ethics.

The influence of the consumer groups has been made clear thanks to FASEA releasing yet another batch of submission documents – this time from the consultation process carried out in June 2018 at the height of the Royal Commission into Misconduct in the Banking Superannuation and Financial Services Industry.

And what those submissions reveal is that both CHOICE and two Griffith University academics were forceful in their views on what should and should not be allowed.

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At issue amongst advice groups is how the Standard 3 of the Code of Ethics changed from:

‘You must not advise, refer or act in any other manner if you would derive inappropriate personal advantage from doing so’

to

‘You must not advise, refer or act in any other manner where you have a conflict of interest or duty’,”

The CHOICE submission said that the organisation supported Standard 2 that a relevant provider, “must neither advise, refer, nor act in any other manner, where inappropriate personal advantage is derived by the relevant provider”.

“The concept of inappropriate personal advantage needs to include conflicted remuneration. That is, the term should be defined within the Code as including behaviour where the adviser receives personal gain, either financial or non-financial (such as performance targets), in recommending a specific product, or volume of products invested, over another,” the submission said.

“The FoFA reforms removed many of these personal advantages, but some still persist. The consequences of not including conflicted remuneration within the definition of ‘inappropriate personal advantage’ will simply mean a continuation of the status quo, and prolonged consumer harm,” the CHOICE submission said.

At the same time, Griffith University’s Dr Hugh Breakey and Professor Charles Sampford argued for the inclusion of a standalone Standard strictly prohibiting conflicts of interest, stating such a measure was critical for several reasons.

Their submission argued that the “removal of any and all conflicts of interests helps demonstrate and communicate the profession’s ethics to the wider public. It is a tangible reform that is visible to and understandable by the wider public, and will assist in rebuilding trust in financial services”.




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I find these retrospective arguments fascinating. We already knew years ago that the banks were planning to destroy advice and direct market the clients we brought in to them. But where were our own bodies, FPA, AFA etc? We had the IOOFP making a little noise but barking up the wrong tree focussing only on commissions when it was already dead in the water. Too little too late, this will change nothing. Get on with the new world and be nimble enough to survive, remember we're here for our clients and always have been.

Clearly people well versed in the provision of personal advice..... NOT!!!!!

Therefore hourly rates are banned (there's an inherent reward for slow work and/or being extra meticulous as the hours rack up). Accountants and lawyers watch out!!!

Therefore commission banned on life risk products even though all commissions are the same level as the more risk the client has the more the adviser gets paid. (this of course ignores the additional underwriting issues that inevitably occur in larger cases and the material increase in business risk of writing such business). The result - NO ONE will have risk insurance anymore as most clients will not pay a fee for an insurance bill.

Therefore asset based fees are banned. The more money managed = higher fees.

Therefore fixed fees are banned as a "disinterested person" would perceive we have no motivation to actually do anything to service the client.

Therefore I'm assuming the financial planning profession will be funded in future by sucking on the government teat and tax payer like the academics, or returning to product payments for survival like Choice.

Well done FASEA, you listened to only one perspective rather than taking on board and incorporating the views of the actual practioners who live in this space day in and day out and already operated, prior to FASEA being the cancer it is, in the highest of ethical standards. FASEA has completely failed to acknowledge personal advice will ALWAYS involve conflict, it's how it is managed that is appropriate and should have guiding principles so the practitioners who are yet to operate at the highest ethical standards can first be educated and then held to those standards.

It's a cock up of epic proportions and a complete failure to understand what you are regulating, ASIC has shown us already how to do this, why is FASEA repeating the same mistake???

Brilliantly put!

Nailed It !!

shat it !

And so it becomes clearer. It ultimately comes down to this same old misguided view of "conflicted remuneration". When will these deluded activists ever realise that ALL remuneration is conflicted, including fee for service.

We are already seeing many advisers follow the same path as accountants, moving clients into inefficient inhouse financial products that use lots of labour intensive administration, in order to boost fee for service revenue. This is NOT in the best interests of clients.

Choice magazine, that mob that is so high and mighty but will continually debit your credit card to pay its subscription, WITHOUT AN ANNUAL OPT IN. Yep they won’t ask if you read their info or receive any benefit but will auto debit your account for their $$$
Hypocrisy Choice, never.
As for the Academics, I’m sure none of the FARSEA board are benefiting from their Uni’s flogging text books and courses they are making Advisers do. No sir, no conflicts of interest at all. What a load of BS highly conflicted theoretical morons clearly on the take.
DO AS I SAY HEY CHOICE MAG AND ACADEMICS, NOT DO AS I DO.
The stench of HYPOCRISY is beyond bearable.

As we all suspected, FASEA has been hijacked by activists trying to circumvent the Corporations Act to impose a ban on insurance commissions. This is anti consumer, and undemocratic.

Academics safely ensconced in their publicly funded jobs who wouldn't know the challenges of running a real business and employing staff. And of course the academic representative on the FASEA Board at the time (Prof. Brimble) from the same university wouldn't have had a hand in the submission now would he? Conflicts of interest in their own backyard. The two financial planning Board representatives would have had no chance of fighting against this conflict mob.

Well one of the academics is a moral philosopher, that'll do me. My next submission will be as the ghost or Kant or Aristotle, that might get us somewhere.

Dear FASEA - here's a simple question for you and your disinterested person...Adviser recommends clients take out Insurance Policy which meets the Best Interest Duty requirements. Adviser will receive a commission of $2,500 on the product recommended however the alternative is to recommend a group life policy via their super fund of inferior quality for less premium and no commission. The alternative recommendation will incur a fee of $2,500 for the advice and implementation and additional fees for further reviews/claims handing. Will the adviser breach Standard 3 by recommending the product with a conflicted payment (commission)? Yes or No!!!
Then same question but adviser will earn commission of $20,000 (larger more complex case)?

On Dr. Hugh Breakey's Griffith University site under the section titled "Grants" , it lists 2 entries for Consultancy/Commercial Research for the Submissions to FASEA (June/ASIC) and FASEA Submissions (August) both in 2018.
The first one is listed as Australian Securities and Investment Commission (ASIC) and the second one to FASEA.
Does this mean that Dr. Hugh Breakey & Professor Charles Sampford were consulting directly to ASIC in regard to the to the proposed submissions to FASEA ?
Unfortunately both of these entries are unable to be opened on this site.
As these entries are listed as consultancy and commercial research, it would be assumed there was a financial transaction that took place.
If so, what exactly are the fees charged to either ASIC or FASEA for the services provided ?

Sounds very much like MASSIVE CONFLICTS of Interest.
But hey it's only Advisers that have to adhere to such lofty Ethics.
Those who preach such lofty Ethics can behave and be completely Unethical.
HYPOCRASY !!!!!!!!!!!!!!!!!!!!!!!!!!!

Damn, no kidding. Looks like his research has been funded by ASIC as well as the ABA, and FASEA apparently, if I'm reading this correctly. ( https://experts.griffith.edu.au/8299-hugh-breakey/grants )

Why are ASIC paying an academic to prepare submissions to FASEA? Do they not have the capability to do it internally? Did his research already align with their thoughts and thus bolster their argument?

What is going on?

If this Arcadian Dream of Ethical Purity around conflict is so important, why has this not been applied with the same vigor to other professions?

I'm feeling rather frustrated at these arguably paternalistic submissions where it seems no matter what you do, everything is up for debate and your actions despite delivering a better outcome could be argued as inappropriate.

You cannot use philosophy as the only consideration in building a framework designed to generate better outcomes for Australian consumers of financial advice.

Consider this - Maybe the underlying ethical philosophies are only partially complete and not evolved enough to understand the externalities they generate when applied. Is it possible that using an absolutist approach to governing conflict by removing it rather than managing leading to arguably worse outcomes despite best intent?

Perhaps we'll ponder this for 200 years.

By the way - where is the link to the CHOICE and Griffith Academic submissions for the COE? I cannot seem to find those on the FASEA website. The others are there??? https://www.fasea.gov.au/coe-guidance-submission/

Is it a case of ASIC provide funding to Choice, and Choice submit what ASIC want to FASEA. Was there any correspondence between the two before Choice's submission?

How about a $40 million dollar "fine" from CBA and Westpac negotiated by ASIC while the former CEO of Choice's Superannuation Consumers division was still a Deputy Commissioner. Payment was made direct to Choice without consultation with the government.

On Friday 1st June, 2018, CHOICE made their submission to FASEA's then acting Managing Director, Dr. Mark Brimble regarding COE.
It was signed off by Erin Turner, Director Campaigns and Communications.
In the second paragraph it states"........too often financial advisers have placed their own interests ahead of consumers and used their relationships with clients to sell products that have been unsuitable."
" An unresolved and long standing source of consumer detriment is the continued existence of conflicted remuneration."
" Examples of conflicted remuneration that still exist include commissions on life insurance, asset based fees and internal performance targets that are based on volume or type of product sold"
"....we strongly recommend that FASEA views the existence of conflicted remuneration, including asset based fees and any grandfathered commission arrangements under the Future of Financial Advice (FOFA) reforms, as incompatible with adherence to the Code"
" Choice again reiterates that the code seeks to " go above the law" and aims to rectify " historical consumer detriment that needs to be addressed". The inappropriate personal advantages that conflicted remuneration provides to advisers should be incompatible with adherence to the Code. A failure to act on this matter would be an opportunity lost".
Then, Dr. Hugh Breakey and Professor Charles Sampford of Griffith University had their say in a 14 page submission.
On the very first page of their 14 pages in relation to comments regarding Standard 2 and " inappropriate financial advantage" they launch into the following.
" However, the term 'inappropriate' is worryingly ambiguous , especially in the context of a) the history of financial advisers as salespeople, not professionals, and b) their existing pecuniary interests and revenue streams, including the use of asset based payment arrangements."
Throughout the 14 pages references to professions only ever acting in the public good and not for reward or gain are emphasized repetitively, however, on page 12 they then state the following.
" Professions are not charities (even though pro-bono work is increasingly a professional obligation and is rightly seen as something that good professionals do). Professionals are expected to charge their clients fees (sometimes high fees). However, the professional is expected to make money from serving their clients in ways that further the acknowledged public good rather than at the expense of their client or the public. For example, if the goal is seen as helping those with financial assets invest in those who can most effectively use them, those who do this well may secure high fees by the volume of safe transactions or the discovery of those who can achieve high and reliable returns for their clients. But high fees are not the goal."

So, on the opening page of their submission, Breakey and Sampford are discounting the use of asset based fees as pecuniary and would lead to inappropriate advantage whilst at the same time on page 12 referring to an example whereby if advice is provided by a professional to a client regarding the volume of investment of monies and the achievement of high and reliable returns results in the payment of increased fees for those "who do this well ", it is acceptable because you are a professional.

There is a very strong correlation between the intensity and focus on adviser remuneration, asset based fees and commissions and conflicts of interest in both the CHOICE submission and the Breakey/Sampford submission.
If anyone wonders why in Standard 3 the variable income clause and the inducement to act etc was included in the COE, I don't think you have to look much further than right here.

The process regarding the FASEA code of Ethics has been an orchestrated and manipulated process from day one.
There has been influence and ideological agenda driving the strenuous advice and recommendations pushed at FASEA and blatant requests for FASEA to act on that advice or risk a lost opportunity.

There has been a documented and biased agenda through submissions and other forms of influence against remuneration types to be abolished and yet FASEA now claim they do not target any specific remuneration type, although the wording in Standard 3 makes it very clear any form of "inducement" would be a significant risk.

This has been a failure of epic proportions and right now we have significant objection to the FASEA COE from an increasing number of very concerned organisations.
The process has been flawed and the influence has been let to deliver an unworkable code.
For those who provide their highly credentialed and academic opinion and revel in their ideology and moral beliefs about how things should be, it is highly contradictory when the very people those contributors are trying to protect will actually be the victims of significantly increased cost of advice and a void of quality financial advisers who are willing to take on their business.

To finish, a message to Hugh Breakey and Charles Sampford:
Financial Advisers and Planners across Australia deliver pro-bono advice to thousands of clients every single day of every single year....it has been that way for decades and so when you claim that " it is something that good professionals do"........think again and then take a moment to realise that everything you may believe to be is not necessarily so. Basing important decisions that will impact many on a personal view or a stereotype is actually highly unprofessional.

You should have your own column here Agent 86. As usual, you are spot on. The greatest tragedy is that FASEA lapped up this extremist agenda without any research into the negative impacts of Standard 3 (and other aspects of the Code of Ethics) on consumers. They also don't seem to have conducted any of their own research into the work we do from day to day, and the satisfaction of consumers who use our services. If they did, they may have discovered some of the criticisms of financial advisers perpetuated by ASIC, the media, academics and groups like Choice, are largely unfounded myths which run completely contrary to the actual experience of consumers, who rate financial advisers alongside the most trusted professions when they are asked.

Yes Agent 86 for PM, but also as guest contributer to MM, youve blown this wide open Agent 86 great work !

Great research Agent 86. It seems that the real intent of Standard 3 is to ban third party payments by stealth.

The heart of the problem seems to be this black and white view held by activist groups that the only type of conflicted remuneration is third party payments, and these payment methods are never in the client's best interest. Wrong and wrong!

There are plenty of examples of highly conflicted fee for service arrangements. Most SMSF services fall into this category. Third party remuneration can often be in clients best interests, by providing benefits such as improved cashflow and reduced tax.

The activist assumption that all professionals are paid by client fees is also completely wrong. Most medical professionals are actually paid from third party sources such as Medicare, private health insurance, and the public hospital system. Fees paid directly from clients are a minor part of most doctors' incomes.

Third party payment mechanisms that provide potential benefits for clients should be considered within a Best Interests Duty context, just as they are in other professions. They should not be banned by stealth, based on the ideological extremism of activists disconnected from reality.

There still remains a total of 15 submissions on the FASEA webite that cannot be viewed.
Of the 38 submissions received, this represents nearly 39.5% of all submissions that cannot be assessed based on their content.
There are 3 Confidential and 12 Individual submissions that are unable to be accessed to ascertain whether there was any doubling up or stacking of submissions that may have deliberately enforced or supported the agenda put forward in other publicly available submissions.
Did individuals with the prior knowledge of the content of other submissions deliberately provide individual or confidential submissions in order to support, reinforce or influence a particular position ?
FASEA should be asked to release those submissions.
In the recent week we have learnt the submission under the heading of Consumer Representatives was provided by 2 academics from Griffith University, but paid for by ASIC via their Consumer Advisory Panel.
How do we know whether the confidential and individual submissions that are hidden from scrutiny have not been prepared with the support of other organisations that were also providing a submission ?

I thought FASEA was required to release them when asked by Parliament. FASEA messed around for a year in the first instance with excuses that make "my dog ate it" look plausible.
My take, FASEA has more to hide and FASEA and it appears FASEA is OK with cover ups? But what and/or who are they protecting?

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