FASEA still under pressure on Standard 3

29 May 2020

The Institute of Managed Account Professionals (IMAP) has added its voice to the chorus of voices telling the Financial Adviser Standards and Ethics Authority (FASEA) it needs to address Standard 3 of the Code of Ethics. 

IMAP has confirmed that it has lodged a nine-page letter with FASEA chief executive, Stephen Glenfield identifying key problems with the code. 

Those problems were: 

  • The conflict between certain standards and established law and regulatory policy; 
  • Inconsistency between the Code and FASEA’s guidance, particularly in relation to the way a Code Monitoring Body may adjudicate a matter under the terms of Standard 3; 
  • Inconsistency in the manner in which the Code must be applied between members of the advice profession; and 
  • The lack of a materiality test. 
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In sending the letter, IMAP has joined a long list of industry participant organisations concerned about the code and, in particular, Standard 3. 

IMAP’s outline of its concerns comes just a week after the gazetting of FASEA answers to Senate Estimates revealed that the development of the code had been the result of consultations and input from “the collective skills of management and directors”. 

In a communication to IMAP members, the organisation’s chairman, Toby Potter said that in sending the letter, “we wanted to set out IMAP’s position, particularly on Standard 3 of the FASEA Code of Ethics, which we believe is structurally flawed”. 

“Importantly, we think it appropriate to note the differences between Standard 3 and the way in which conflicts are required to be addressed by other professions, like law and accounting, which have had considerably longer experience in addressing this issue.” 

The IMAP Regulatory Group is seeking a review of Standard 3, which it believes is not only important for professionals working in the managed accounts sector, but for all financial advisers. 

“Standard 3, as it currently sits, imposes a significant burden on the provision of advice. It contradicts another standard in the FASEA Code of Ethics, as well as established law,” Potter said. 




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Congratulations IMAP. I have seen the letter (it's publicly available) and it's a very detailed and well argued critique of the key problems with the FASEA Code.

However I would urge IMAP to also send it to the media and all members of parliament, as we know FASEA will ignore it. FASEA has ignored all industry feedback so far, and instead chosen to impose draconian, impractical solutions devised by the clueless zealots on its Board and management. Unfortunately there is no reason to think FASEA will take any notice of this excellent document by IMAP.

If FASEA don't change the code urgently, the exodus of financial planners will continue until 95% plus are gone. The way licensees are interpreting the Code of Ethics is resulting in some seriously perverse outcomes right now and this is a ticking time bomb. Stephen Glenfield's pathetic assurances that life insurance commissions and asset-based fees are not banned are foolish and dangerous. The lawyers (and frankly anyone with half a brain) can see this is bullshit so it is only a matter of time before the lawyers step in and force us to back-pay all of this income to clients, which will bankrupt self-employed financial planners en-masse. It's time for Hume and the Government to wake up. 60%+ advisers haven't registered for the exam. If they think that is due to the education requirements or the exam itself, they are dreaming. It's because 60%+ don't see any future in this profession. Two of my best friends are out the door. They are knowledgeable, ethical, hardworking, professional advisers with good compliance track-records and happy clients. Both have approved degrees and profitable practices. They have sold at fire-sale values and are walking away. Why? FASEA Code of Ethics.

What is even more concerning is AFCA coming out and saying the COE is a blessing. Advisers are simply going to get slaughtered if anything goes to AFCA. How can AFCA claim to understand and enforce the code, when the whole industry cant because its so convoluted.

Absolutely correct, AFCA will take a blunt tool approach to Standard 3 which is very difficult to meet. Why did you charge 3K when you could have charged 2K , you had a conflict therefore must not act!! Now I know that is an extreme, but you only need one personality clash or idealist in charge of your case at AFCA and you are gone. Subjective legal risk is not one you want exposure to, at least not to this degree.

It's worse than that. If you attend the FPA conference or a PD Day and there are presentations from product providers, that's a conflict of interest. If you invest in any products recommended to a client, that's technically a conflict, even if infinitesimally small and immaterial. If you speak to a BDM, conflict. If you accept a referral from an accountant, mortgage broker, lawyer or even a client for that matter, it's a conflict of interest. There is no way around it. Every single adviser in the country is breaching FASEA's Code of Stupidity. The FASEA board are either complete morons or they are deliberately trying to wipe us all out. It's a farce.

Well No. Yes if you attend an FPA event and then subsequently recommend a product that is definitely a conflict given that product manufacturer subsidizes your membership fees. The referrals from mortgage brokers, accountants are all ok. You need to read FASEA explanatory document, which states these are ok providing you don't get a referral fee. Talking to a BDM is called research and is ok providing you're not getting any free lunches. I sense you work for a product manufacturer owned licensee and are trying to make this harder than it is.

FASEA COE Standard 3 was designed and RE-WORDED for one purpose and one purpose only.
That was to eliminate both risk insurance commissions and asset based fees not through direct legislation but through the gradual and systematic persecution of advisers over time to the point where there was adequate precedent set to warrant the ASIC review to use that basis and information to wipe them out completely.
Stephen Glenfield continues to " re-assure" that this is not the intention of this Standard, but it is pathetic to think that advisers are not feeling like they are the deer in the headlight.
"Other sources of 'variable income' clause in Standard 3 clearly states " You WILL breach"....NOT you MAY breach.
Irrespective of WILL or MAY, this clause only requires the conclusion of a disinterested person to claim the adviser was acting under an inducement and therefore conflict and then the adviser has breached a standard.
Who would be that "disinterested person" at the time of dispute providing their opinion or analysis as to whether the adviser was not acting in the clients best interest ???
This would result in a guaranteed guilty until proven innocent approach.
Not only that, Standard 3 states " YOU MUST NOT ADVISE, REFER OR ACT IN ANY OTHER MANNER WHERE YOU HAVE A CONFLICT OF INTEREST OR DUTY".
A fee for service model, a commission payment or an asset based fee model may all be deemed to be in some manner a conflict of interest and so potentially an adviser should not act, but secondly, variable commission and asset based fees can be easily susceptible to the inducement conclusion.
These significant concerns from many parties (now including IMAP) require FASEA to revise Standard 3 and Standard 7
as they are simply designed to entrap and then prosecute.

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