FASEA answer holds line on code of ethics

The Financial Adviser Standards and Ethics Authority (FASEA) has sought to argue to Parliament that Standard 3 of its Adviser Code of Ethics demands no more of financial advisers than similar codes applied to other professions.

Answering a question on notice asked by Queensland Liberal Senator, Amanda Stoker FASEA has sought to hold the line on its approach to the code of ethics and requirements around adviser remuneration and conflicts of interest.

In doing so, it claimed that the code did not seek to ban particular forms of remuneration or determine that particular forms of remuneration were always an actual conflict.

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It said that FASEA believed that its approach to conflict to be “both realistic and practical and in line with community expectations”.

“The Code does not seek to ban particular forms of remuneration nor does it determine that particular forms of remuneration are always an actual conflict,” the FASEA answer said.

“The guidance discloses the intent of the standard and notes 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 are in the best interests of their client and comply with the other provisions of the Code.”

The FASEA answer said this meant that in assessing whether they had an actual conflict the advisers needed to consider their remuneration in the context of the whole of the Code and satisfy themselves that the remuneration did not impact their ability to provide advice that met the provisions of the code including that:

· the advice is in the best interests of the client;

· the fees and charges (regardless of type) are fair and reasonable and represent value for the client and are fully understood by the client

· the client understands the benefits, costs and risks of the recommendations made; and

· the advice and fee structure are appropriate for the client.

Explaining why advisers were being asked to do no more than other professionals, the FASEA answer said: “In the case of Standard 3, the ‘standard of judgement’ is one commonly applied in Australian Law and is consistent with that applied in other professions”.

“An adviser needs to assess if: an unbiased (disinterested) and reasonable person, in possession of all the facts, could reasonably conclude, that an arrangement or benefit could induce an adviser to act other than in their client’s best interest.”

It said that an arrangement that failed that test was in breach of Standard 3, adding “otherwise, arrangements are permitted - whatever their specific form”.

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Talk about double-speak and nothing-meaning. Until this is clarified in court, no-one will have a clue what can or cannot be an acceptable form of remuneration, other than issuing an invoice every time advice is given. I can see a lot of Australians missing out on advice in future. But then, that's increasingly been the case for the whole of 2019.

Issuing an invoice every time is not acceptable either. Fee for service is also conflicted, and Standard 3 requires advisers to avoid all conflicts.

Some people will say "it's not meant to cover fee for service". But it doesn't say that. It says avoid all conflicts. Besides which, fee for service is often used as a form of remuneration where there is a clear conflict, and the client is put in a worse position because of it. Unnecessary use of SMSFs that generate additional fee revenue being a classic example. Advisers should not be allowed to hide behind a particular remuneration method to give inappropriate conflicted advice.

If what Standard 3 is meant to say is "avoid all conflicts which result in the client not being in a better position" then the actual Standard needs to be changed to say that.

All of those nice words of explanation will be forgotten in 5 years. We'll revert through AFCA and others steadily to what it actually says.

Yet another weasly cop out by FASEA. At the end of the day the FASEA Code says advisers must AVOID all conflicts of interest. Most other professional codes require their members to MANAGE conflicts of interest. This is why FASEA is so different and so unworkable. Other professions understand that all remuneration (including fees for service) can be conflicted, and some forms of third party remuneration (eg Medicare and health fund payments) can be in client's interests.

The FASEA guidance is so ambiguous and inconsistent it cannot be relied upon. And it's irrelevant anyway. At the end of the day what really matters is how regulators like ASIC, AFCA and the new disciplinary body interpret the legislated code. It doesn't matter what FASEA's non binding guidance says.

Minister Hume must ensure that Standard 3 is made more workable and brought into line with other professional codes, by changing the requirement to AVOID conflicts, to one of MANAGING conflicts.

This statement is a joke "Standard 3 of its Adviser Code of Ethics demands no more of financial advisers than similar codes applied to other professions".

First of all....what about the conflict of interests of having FASEA structured by a board of achedemics who are employed by the universities providing the courses and giving preference to the courses provided by their employer.

What about lawyers who only have to work in their own best interests, what about polititians who only ever work for their campaign contributors, what about property sellers who are responsible for the biggest investment in most people's lives, what about BANKERS who routinely steal from customers and are never prosecuted or even punished other than a slap on the wrist fine (usually amounting to less than they made from their crimes in the first place)

Why cant we have thr Best Interests Duty applied to ALL sales for ALL products.

And why are commissions paid to advisers who look after their clients and do all the background compliance work (which no one other than advisers/their staff realise the extent of) the only ones which have come under scrutiny?

How is a commission on a mobile phone plan for the distributor adding any value. They give no service after point of sale. How is a commission paid to an electricity re seller giving any value (they are just re selling something they didnt produce).

IHow is a trailing commission on a mortgage worth anything. They dont have to do any compliance and dont have to give any ongoing service and still get paid for the lenght of the mortgage (30 years unless they change provider which also gives them another upfront commission and anither 30 years for trail commission).

This industry is a joke and dont we all know it.

But it will all come crashing down when we are all employed by the product providers who only sell their products and the only way to get independent advice is to pay over $10k pa adviser fees.

couldn't have said it any better

Eloquently and honestly said Anon4,

Lawyers now seem to be promoting Super Insurance Claims to consumers. Would the code apply to this scenario? These lawyers sign up clients (who are generally vulnerable) onto legal contracts with exorbitant fees. This is done knowing that the lawyers could tell the client at the very start to speak with their super fund and/or financial adviser with No or a much lower fee than what they would charge - and the lawyers preach to us about Ethics and Morals.

Give me a break ASIC you wouldn't know a financial planner nor the process involved in providing clients with personal advice.You are just on a witch hunt to destroy small businesses.

The comments made by FASEA are a load of crap.
What they said in Standard 3 is not what they are saying now.!
Their recent interpretation of the code in relation to Conflicted remuneration states that if you receive commission on any product, you have breached the code.
Where in that interpretation of the recent statement on Standard 3 put out by FASEA does it state anything other than,.... if you receive commission from any product, you are in breach of the code and after 1 January 2020, you can no longer talk to that client.
So if I have a risk client relationship where for the past 10 years, they have been happy with my service and to receive 10.0% renewal commission, (which is stated on every client review) of say $300 p.a on drip feed basis because it's paid monthly, I should now forgo that $300 and should charge them $800 p.a. for my review and time spent to see them, because FASEA says I'm conflicted.
I wonder how long does FASEA think that the client will pay me $800 p.a personally when they were happy for me to receive $300 p.a via their renewal premium from the life company !

Yes Minister! I note also Ms Kent has quietly moved her AFSL from MLC/GWM, but to another that also has ' Portfolio Solutions' read Managed Accounts/Read clip somewhere? Anyway, they'll be next, like changing seats on the Titanic.

Deborah Kent ?........oh, the FASEA Board member that use to represent advisers interests when she was the AFA National President............strangely very quiet.

Yes, well as I understand it there are many MLC/GWM advisers bailing from there because they will be pursued next year over fees for no service. It would be ironic or the last straw if board members of any of these institutions, FPA etc were caught up in this next year. Giving they want to go back 10 years I think it is inevitable some will be caught.

Well that's it then. Any self-employed adviser, who relies on life insurance commissions or asset-based fees is now screwed. Glenfield and his conflicted board may think they have fooled the Senate, but months or years down the track, ASIC and the future code enforcer will round us up and destroy our businesses and our AFSL's like they have done to the banks with the fee-for-no-service witch-hunt. What a sick joke FASEA are. With almost zero warning, they have burned thousands of rural and suburban self-employed advice businesses, who work their guts out helping Australian consumers? For what? An untested, extreme, draconian, set of ideological regulations with no impact statement and completely out of step with the mandate given to it by the Government and the recommendations from the Royal Commission. Unbelievable.

I personally can't see the issue with Standard 3 and life insurance commissions. It's only deemed a conflict if your advice was impacted by the size of commission you receive i.e. you recommended huge sums insured that weren't warranted for the particular client, but if you're doing that you've bigger issues than the FASEA Code, you'll be banned for not meeting Best Interest.

Standard 3's guidance doesn't say that commissions are automatically conflicted or banned, it uses them as an example in the context of whether a reasonable person could determine that your advice was influenced by the level of commission.

If you have a fully documented needs analysis showing how the recommended insurance is appropriate and in the best interest of the client then you've got no problem.

I call BS. The code says no conflicts. FASEA's guidance says no commissions if a disinterested person thinks your advice 'could' be influenced. So they are banned. The comments from Glenfield and others are dangerous, because some foolish advisers may believe them. Advisers need to understand what they are up against so they can fight these insane regulations or make adjustments to their business to survive them.

I agree. Commissions are potentially conflicted and are therefore not allowed. But so are fees for service and asset based fees. All forms of remuneration are potentially conflicted, so under FASEA Standard 3 all forms of remuneration must be avoided. It is ridiculous and unworkable. The FASEA Code must be rewritten.


I don't think your vision is very clear Brett if you cannot see the unworkable and manipulated position this has placed advisers in.

The reality of all this is no one knows for sure what will end up being acceptable.
Example - fee for service - 'over reviewing'
Commission example - what if you receive a commission of say $5000 but that is what would be reasonable to charge as a fee for service, is there a problem?
Another example - what if you charge say $2000 more than the 'market' due to business requirements but you only add a little more value the average in the market - is that an unreasonable amount?

Yawn. All your screeching and screaming will change nothing. It’s a done deal. If you want to see where this is heading, suggest you investigate pifa.org.au and see what they’re up to. As more planners begin to employ a business model that’s not dependent on the sale of a product or where planner remuneration is basically a commission by another name, the dinosaurs will become extinct. That is simply because the pifa business model is much better for consumers.

Better for consumers? Ha ha. Thanks for the laugh. I am now moving over to this model so I can comply with FASEA's code. The result? At almost every client meeting, I am increasing the cost of my advice. For those who won't accept the increase, it's bye bye. With so many advisers heading for the exits, I am getting a noticeable spike in new inquiries. For low balance clients, where I can't justify the fees as 'value for noney', they get a nice hand shake and a warm thank you as I say goodbye and end my service with them. About the only benefit I can see is in my bottom line. I'm going to make a fortune out of this. Consumers better off though? Ha ha, no way. Same advice, higher cost and now inaccessible to the average consumer

Well said.

Screech and scream or adapt. Only the latter will be around in 2 years. The APRA pressure on trustees coupled with the “biased advice” disclosure in big bold letters (that legislation will there early next year) makes it pretty clear that there is only one workable business model going forward. Fighting to preserve the old ways in any shape or form is just sticking your head in the sand. The old business model has absolutely no public or political support. The industry has had 9 months to mount a credible/plausible explanation why the old ways should be preserved and ? Nothing. At the end of the day, people object to paying big dollars for a “service” which in most cases, was simply a phone number to call if you need help. A Christmas and birthday card is not “ongoing service”. If you have more than 300 clients on you book, there’s no way you can be doing the job properly. I agree with the cost of advice statement but expect the market will respond in the end. The AFA and FPA’s rantings over this stuff has simply seen them excluded from any meaningful dialogue.

An accountant who is also a financial adviser is conflicted. An adviser sitting in an accountant's office paid by the accountant is conflicted. Similarly for mortgage brokers. So do these advisers need to leave the industry? Who knows? ...... if you think you know you've missed the point that standard 3 will get re-interpreted over time.

So "Big Trev".........130 clients per adviser max at an average annual fee of $6000 p.a totaling $780,000 gross income per adviser ?
Servicing and reviewing 3 clients every week for 43 weeks of the year plus multiple contacts, advice and service requirements for all clients throughout the 43 weeks.
So, for all those advisers across Australia that work in regional areas and where the ability to work with higher net worth clients on a regular basis in order to get anywhere near the $6000 p.a. fee required its just shut up shop time ?
If so, there will be hundreds of thousands (possibly millions) of Australians that will never receive any advice, guidance or assistance in relation to their financial well being, security or retirement planning.This is a tragedy.
I assume you may also think that risk insurance commissions are on the way out and fee for service insurance advice will be the way forward ?
And what is the "one workable business model going forward" ?

Hedware is no where to be seen lately. Maybe he has completed his choice role.

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