Doubts raised about validity of FASEA code and exam

24 February 2020

Future boards of the Financial Adviser Standards and Ethics Authority (FASEA) will have no choice but to come to grips with the legal uncertainty inherent in the FASEA code of ethics, according to academic, Dr David Millhouse.

Millhouse, an honorary adjunct senior research fellow at Bond University,  has provided commentary around the FASEA code and the notion of best interests and concluded that an Australian financial adviser can comply with the existing best interest provisions of the Corporations Act but be found wanting under the FASEA Code of Ethics.

What is more he argues that despite FASEA having published cameos describing various client circumstances, these are not cases, do not establish precedent and are not law.

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He goes further by suggesting that the FASEA adviser exam may also be flawed with respect to its reference to the code.

Millhouse said that, despite this, financial advisers would find themselves carrying unlimited personal liability.

“Future boards of FASEA will have no choice but to come to grips with the legal uncertainty its Code of Ethics has created,” he said. “…The reading list for the compulsory examination contains no direct authoritative references to the central questions of best interest and, because of the way the Code is drafted, other law (for instance, what constitutes ‘informed consent’) which support the best interest duties. This raises doubts about the veracity of the examination for the adviser in their quest for legal certainty”.

Millhouse said the objectives of the Code of Ethics were doubtless pure but it did not have the jurisprudence and statutory support of pure liability civil law countries or the necessary supervisory architecture for effective implementation.

“These will take some years. In the meantime, the Code should operate on a comply-or-explain basis. Advisers, for their own defence, may themselves want to become status-based fiduciaries by virtue of contract and apply absolutist fiduciary principles,” he wrote.

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Interesting that a university academic has highlighted the flaws of the Code of Ethics, as well as the cases. FASEA had a senior university academic on their Board (Mark Brimble), so you would have assumed he would do some homework and run the Code of Ethics by a legal academic at Griffith University (yes they do offer Law). One can only assume either he didn't, or if he did , he ignored any advice provided to him? Just another example of Board failure @ FASEA. How much more evidence does Minister Hume need before she takes action?

Unfortunately David was also a former director of Trio Capital, even if his academic analysis and background is sound, the various politicians and FASEA apologists will have a field day attacking his credibility.

If you do some research, you will find he left Trio well before it went pear shaped. If anything, it makes him far more qualified to comment on this area.

As far as I know ' Best Interests '' is not defined in the law. So how do you comply, and have a legal defence - that is what he is arguing and he is correct. Subjective interpretation risk of laws is why many are leaving the business.

Yes it is defined in the law. Sect 961B of the Corporations Act sets out the "best Interests duty".

Yes, but the underlying steps to achieve that are all subjective - i.e. g) taken all other steps that would reasonably be regarded as in the best interests of the client - come on, this has been written by lawyers in such a subjective way, they knew they could/can feast on vaguely written laws for decades to come.

I think ASIC call it shooting fish in a barrel !

Yet further highly educated and considered criticism and commentary regarding FASEA process and implementation.
Is it a case whereby Minister Hume just cannot bring herself to act because of embarrassment for the Govt regarding FASEA or is it a case that they will simply just push on with just about everything at this stage irrespective of whether the process or the outcomes are flawed.
It must be remembered that all of this has been grossly influenced and exacerbated by the knee jerk
" Yes Sir, 3 bags full Sir" response to Kenneth Hayne's RC recommendations.
When Ken didn't want to shake Josh's hand, I reckon given half a chance, Josh would have got on the floor and licked his shoes he was that eager to please and be seen to be wielding the stick.
This is about Minister Hume now giving appropriate attention to the failings of what knee jerk responses can do when they are ill thought out and are primarily driven by political perception and approval rather than fact, reality and proper process.
Time to be brave Minister Hume and call it for what it is.
If you listen to the scientists regarding climate change, then you should listen to those who know in relation to financial services and how best to manage regulation moving forward so that it does not have the effect of decimating the service and advice to hundreds of thousands of Australians who need the advice relationship, the education and guidance and the results to ensure their financial security and financial well being are sustained.

Not at all surprised. The whole thing is a shambles. What a waste of time and money.

the whole financial services system has been hijacked by academia with no practical knowledge or experience. Most academics would not have the faintest idea as to how to effectively communicate, build trust and rapport. Furthermore, after sitting the Fasea exam, it seems to be an exercise as to how to interpret questions rather than testing you on your skills, knowledge and experience - just a pathetic joke this industry has become.

An accurate 'interpretation' of the exam. Many others have said the same.

Dave is back. Frankly after his career I accept whatever he thinks is bad as the way to go. Doesn't anyone Google these people when they pop-up saying stupid stuff?? Try "David Millhouse Trio" or "David Millhouse IAG". More front than a council bus!!

If you read his book, you might come to a different conclusion.

Unlikely. I tend to judge people by their actions not their words.

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