Fix the code or delay implementation says AFA

Financial planning groups will meet today with the Financial Adviser Standards and Ethics Authority (FASEA) in an attempt to gain clarity around the code of ethics, with the Association of Financial Advisers (AFA) calling for a delay in the code’s implementation if key issues can’t be resolved.

AFA general manager of policy and professionalism, Phil Anderson has reinforced to Money Management that time is running out to fix some very vexed issues in circumstances where the code is scheduled to be implemented from 1 January.

He said that in the absence of such a resolution of key issues, particularly around Standard 3, the AFA would be advocating to the Government for a delay in the implementation of the code in circumstances where advisers would be faced with significant risks of breaking the law and undermining their livelihoods.

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“We are desperately short of time and we need clarity on these issues,” Anderson said.

The AFA has made clear in a communication to members that it has particular issues around Standard 3 and particularly its impact on asset-based fees and all forms of commissions.

It claimed that, unless addressed, the FASEA code could place up to 57% of financial adviser practice income at risk.

“The Code prepared by FASEA, has the potential to fundamentally change the way financial advice is practiced.  It appears that the FASEA Board have chosen to use this as an opportunity to rewrite the law,” Anderson said in his communication to AFA members.

“As a result, the entire financial advice sector is left completely uncertain as to what will be permitted under the Code and what will not, with less than two months until commencement and no obvious way to fix this problem.”

“With all forms of commissions and asset-based fees now in doubt, 57% of financial adviser practice income is at risk, as a result of this version of the Code of Ethics.  This will impact both financial advisers, but also their clients, who might be forced to change their adviser’s remuneration arrangements at very short notice.”




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Clarity ? So, what part don’t you get? It’s pretty clear that the end game here is to separate product from advice. If the more you product you sell, generates more income for you, then that’s pretty clearly a conflict of interest. The FPA and AFA are trying to overturn an underlying theme of the Royal Commission recommendations. It won’t happen. FOFA was the starting point for this. That most chose to ignore the intent of FOFA is the reason the industry is being “told” what will happen now. The FPA and AFA’s street cred in this space was smashed to smithereens thanks to the Sam Henderson show at the Royal Commission.

What if you make more income by doing more stuff inhouse for a fee? Such as SMSFs? Or internally managed investment portfolios? Is that OK because there's no "product" being sold? In many cases the client is actually worse off. Conflicts still exist with inhouse services paid for by fees. Sometimes they are even greater. The proliferation of expensive, inappropriate, SMSFs recommended by accountants is testament to this.

Regulatory focus on products and payment methods is arbitrary and counterproductive. What really matters is whether the product (or inhouse service) is in the client's best interest, regardless of delivery or payment method.

Good god, this is a gross misunderstanding of the text. If you have a conflict of "ANY" manner "YOU MUST NOT ADVISE, REFER OR ACT", you can have clear and serious conflicts even when product and advice are separated, this is the problem, not separating advice and product. Every single fee you charge is conflicted in its own unique way, which is why everyone is in meltdown over this, its not practical in the real world, its an academic dream at best. I endorse separating product and advice, but Standard 3 issues are way way way beyond that the simplification of separating product and advice What if selling more of your services under a fixed fee generates more income for you? That's a clear conflict of interest with fixed/hourly fees, they incentivise a provider to recommend complexity as you get paid for it. This is why globally conflicts are "managed" and not prohibited across all professions, because the non-existence of a conflict is nothing but an academic utopia in the presence of any profit motive or fee, this ideal exists in textbooks and lecture halls and ends there. I actually think 100% of adviser revenue is impacted by this, because every fee creates a conflict, not just comms and ABFs. This standard is literally unworkable and total chaos, it is a lawyers feast.

It's OK, I've worked it out...they only way to be conflict free is to be an Industry/Not-for-profit employed adviser that is paid a salary from the super fund members admin fees. Then I need to recommend the cheapest and best performing super fund from my APL which does not include any alternatives that are actually cheaper or better performing on a risk adjusted basis (particularly if they are a for profit organisation...heaven forbid) My employer will be happy because of the retention of FUM and growth as I rollover everyones super to my employers fund. The additional revenue that is generated for my employer must be spent though as they are not-for-profit, so everyone gets a payrise and more advisers are put on. Rinse and repeat. I'd rather super be nationalised then head down this path. How many financial advisers would be employed by a not-for-profit super fund if they provided no commercial benefit to the fund or it's cronies? Member education...rubbish, member engagement...rubbish, it all means nothing if FUM not retained or grown through the sales channel they call financial advice. Level the playing field - BAN employment by product providers.

I dont get if the end game is to separate product from advice why Product Providers can employ financial advisers? If they provide no financial benefit to the product provider (read conflict) why are they using their own capital or in the case of not for profit super funds their members retirement savings to pay financial advisers? No problem here if VI banned but what is presented in CoE is not that.

It will be interesting to see if any of the FASEA Board members are present at the consultation sessions, or are they happy for Stephen Glenfield to take all the heat? You've to have some empathy for him. The Board signed off on the Code and we assume of the Code of Ethics Guidance. After all, it did take 10 months to develop. You would have thought given the industry-wide criticism of the Guidance that there would be at least one Board representative at the sessions to hear first hand the issues they have created.

Feel for Mr Glenfield? He couldn't remember the 5 core values that his organisation stands for....
But yes, will be interesting if any Board members front up to earn their money.

Stephen Glenfield needs to resign immediately and the Code of Ethics needs to be reverted back to the original version. The financial planning community does not support this new version of the code. It is unworkable nonsense that will bankrupt the great majority of self-employed financial planners and destroy enormous amounts of capital and jobs. The way they released a sensible version of the code, and then later after the consultation process switched to this insane piece of academic tripe, is beyond belief. They have not listened to adviser concerns. They have not conducted any testing, modeling or research into the impact of the code. It is an experiment that will have a very real and damaging impact on consumers. Glenfield's appearance in the Senate hearing, where he tried to tell Senator Amanda Stoker that life insurance commissions weren't banned by the code, will go down as one of the most ridiculous pieces of spin I have ever seen.

Senator Stoker asked Stephen Glenfield this question.
" Did FASEA consult with ASIC on Standard 3 and if so, what did they say " ?
Stephen Glenfield did not answer this question, but proceeded to cover it over by stating FASEA conducted a broad consultation.
He did not answer Senator Stoker's specific question regarding ASIC involvement.
FASEA must now release all documentation and records of submissions in relation to the so called consultation process regarding the re-wording of Standard 3.
The commentary from Glenfield in relation to requests from those involved in the consultation process seeking clarity around the wording of Standard 3, resulted in an unworkable and discriminatory alteration to the initial wording.
It cannot be underestimated that pressure was directly applied to FASEA to alter the wording under the guise of "increasing clarity."
There has been intervention in relation to this most important matter and Stephen Glenfield is not going to disclose the details of exactly what happened and exactly what requests were made to FASEA.
If it was a broad consultation, how broad is broad when it does not include industry representation at any level in relation to the wording of Standard 3 ?
This is a cover up and there has been influence and manipulation by a powerful and influential participant.
This process must now be immediately suspended until a workable and fair outcome for all is achieved.

To open the consultation documents submitted to the public would demonstrate transparency & hence be algned with the principles of ethical conduct.

Directly from the FG002 FASEA Financial Planners and Advisers Code of Ethics 2019 Guidance document.
" The Code is a living document subject to change ".
Conflicts of interest and duty.
" It is important to note that the mere fact that a conflict is permitted under part of the law does not offset your duty to act in the best interests of your client free from ANY conflicts of interest or duty.Your duty so to act may only be modified or set aside if you are compelled to do so by law.
So, insurance commission payments and asset based fees are allowable forms of remuneration under the law, however, under Standard 3 of the Code of Ethics it states " You must not advise, refer or act in any other manner where you have a conflict of interest or duty".
The major concern is the reference to 'variable income' sources.
" You WILL breach Standard 3 if a disinterested person, in possession of all the facts, might reasonably conclude that the form of variable income (eg. brokerage fees, asset based fees or commissions) could induce an adviser to act in a manner inconsistent with the best interests of the client or the other provisions of the Code".
This statement categorically means that any payment of a variable income source for advice provided WILL breach Standard 3.
The statement ...."might reasonably conclude" is the catalyst for any client or any client's legal representative to claim the advice provided was determined primarily by the amount the adviser received for that advice, irrespective of whether the advice met all other requirements including under Standard 7 where " You must satisfy yourself that any fees and charges that the client must pay to you or your principle, and any benefits that you or your principle receive, in connection with acting for the client are fair and reasonable and represent value for money for the client".
So, even if the variable form of income received satisfies all other standards including the fair and reasonable test under Standard 7, it WILL automatically breach Standard 3 based on the assumption there existed an inducement for the adviser to act and therefore considered to not be in the clients best interest.
Stephen Glenfield must explain to all concerned why the revised version of Standard 3 is not a catch all clause designed to entrap and cause an immediate breach of the code for any adviser receiving initial or ongoing insurance commissions and asset based fees despite being fully disclosed, representing fair and reasonable value with the client fully informed and understood under Standard 5.
The deception and deliberate manipulation of the re-wording of Standard 3 is designed to re-write the law and specifically manufactured to deliver an unworkable and easily litigious environment against advisers.
This is not about the morals and ethics of advice but about significantly exposing any advisers who receive these forms of legally acceptable remuneration.
This is a remuneration control document and the transparency is now there for all to see.
The financial adviser industry has had enough of the persecution, victimisation and discrimination.

Just to reiterate that statement from Page 17 of the Code of Ethics Guidance document.
"You WILL breach Standard 3"..........NOT, " You MAY breach Standard 3 ".
What is the limitation in relation to the determination of " inducement " ?
I suggest nothing as inducement could be determined if the adviser was paid $100 or $10,000.
If the adviser was paid $10,000 as a direct fee and not from a commission or asset based variable income source, would that be considered as an inducement to provide that advice as the adviser may have acted in a manner inconsistent with the clients best interests ?
The primary issue with this standard is that it singles out a specific form of remuneration even though it is categorically evident that an adviser charging the client an hourly rate for advice could easily extend the hour count or time frame taken for the provision of that advice and have been induced by personal gain to do so.
This standard is in fact delivering double standards and favorable treatment to specific types of remuneration in an effort to alter and change the law.
This is a standard within this document specifically designed to cull and cut a large proportion of professional, ethical and dedicated advisers from financial advice and to force a wholesale change with no reasonable time frame for adaptation or consultation.
Minister Hume must step in and intervene immediately as FASEA is now considered inept and unable to deliver a fair and equitable governing document.

I think the issue or idealogy they are aiming at is this: The fee from the platform, whilst visible is not always seen - they know clients don't always read their statements . Sure they they get the FDS and the Opt-in, I agree. They are saying if you can't put an invoice in front of the client and have them write a cheque and hand it to you, it's not transparent. Funnily enough that's how many used to do it before Wraps came to be.

The vast majority of clients would elect or prefer to pay their advice fees from invested funds rather than pay from personal funds which are not deductible.
These payments are made very clear via the FDS and Opt In and clearly identified through an adviser payment authority and on the client statement.
It is an insult and over arching control that is attempting to control and reduce payment options for clients.
The client should have a range of payment options made available to them.
The client should have flexibility as to which option best suits their circumstances.
The dictatorial nature of what is being pushed is removing choice and therefore potentially removing the scope of consumers who can access quality financial advice at an affordable and suitable payment method.
The process of restricting payment options is in fact going to result in a significant reduction in the diversity of consumers seeking advice.....and that is not in their best interests and not in the best interest of the economy, the country, the tax payer or the social security system.
It is idealistic and dictatorial and will not deliver any identifiable benefit.

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