The Financial Adviser Standards and Ethics Authority (FASEA) has released the legislative instrument and explanatory statement covering the Code of Ethics standard for financial advisers including amendments to standards around conflicts and best interests.
FASEA said the amendments had followed consultation around 18 submissions in November and December.
“Following this consultation, FASEA has clarified aspects of the code, including the values underlying the code, and amending standards around conflicts, the best interests of the client, the effects of advice on the client and adviser record-keeping,” the FASEA announcement said.
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I always suspected FASEA could destroy us with the Code of Conduct. This document is completely nuts. From my reading, it appears FASEA has effectively banned self-employed financial planners outright. There is no way we can operate without our income being directly tied to the 'amount or volume' of products we recommend. Even if you charge a flat fee, it will still be linked to product advice and the more clients on your books, the higher your wage/bonus/dividends from your business. Can someone please tell me I am wrong, and if so please quote directly from the document. No ill-informed nonsense. Read the thing and tell me I am wrong, please...someone....
Where do the documents state you cannot derive your income from 'the 'amount or volume' of products we recommend'.
There is no mention that you cannot charge a client X% of the amount they wish to invest (% of FUM).
Explanatory statement is specific:
You will not breach Standard 3 merely because you recommend to a client financial products offered by your employer or principal. However, you will breach Standard 3 if a variable component of your remuneration depends on the amount or volume you recommend of those products, because your interests will or may conflict with your duty to act in the client’s best interests.
Read the explanatory statement Billy:
'you will breach Standard 3 if a variable component of your remuneration depends on the amount or volume you recommend of those products, because your interests will or may conflict with your duty to act in the client’s best interests' (Section 38, page 6)
If you read that section in full, it's not just percentage based fees that will be affected for self-employed advisers. You won't be able to charge a set-dollar fee or even an hourly rate, because the number of products you recommend to a client, will influence the 'amount or volume' of your remuneration. Unless of course, you charge exactly the same fee to every single person who walks in the door, regardless of their complexity (ie. a more complex client needs more products, therefore higher fee) but then you would fall foul of the 'good value' test for the less complex clients. The way I see it, FASEA has effectively made it illegal to operate a self-employed financial advice practice from 1 Jan 2020. The only financial advisers allowed to operate going forward will be the totally conflicted, employees used by the industry funds and banks to flog products and retain customers.
Bloody hell - what on earth is going on in these Government bodies/regulators? Seems they are making a lot of money making more and more regulation on the term "conflicted remuneration " which seems to be more reason to have more people employed in compliance and education to enforce the rules that said regulators/educators recommended. What the hell, you seem to be right.
The ES does not say a client cannot be charged based on a percentage of the amount they invest eg, $100K invested and the fee is 1% of that amount = client pays $1000.
The breach is if you, as an adviser, are paid a 'variable' amount such as a bonus for recommending particular products offered by your licensee, eg a bonus based on volume or amount invested in the licensees product. This is conflicted remuneration and has been banned since December 2017.
I’ll post an independent assessment on LinkedIn tomorrow.
It also states;
Quote "Standard 12
Individually and in cooperation with peers, you must uphold and promote the ethical standards of the profession and hold each other accountable for the protection of the public interest."
Is the FPA getting payments from a product provider in the interests of the public. Or is it a conflict of interest?
What was I saying? Oh that's right the Marxist onslaught continues.
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