The FASEA code of ethics is seeking to rewrite financial services law and will impose conditions that will affect close to 60 per cent of a financial planner’s income, according to the Association of Financial Advisers (AFA).
The AFA made the claims in a new paper, authored by AFA policy and professionalism general manager Phil Anderson, that details its concerns about the code.
The paper examined the guidance provided by FASEA for the 12 standards contained in the code, and noted standard three, titled “Not Advise or Refer Where There is a Conflict of Interest or Duty”, was “inconsistent with the long-established requirements to manage and disclose conflicts of interest”.
The body pointed to section 912A(1)(AA) of the Corporations Act, which requires Australian financial services licence holders to manage conflicts of interest, as well as to ASIC (Australian Securities and Investments Commission) Regulatory Guide (RG) 181, which outlines how licensees can manage conflicts of interest, adding “RG 181 does not require an outright avoidance of all conflicts of interest”.
The AFA noted in contrast to this position, FASEA stated on 18 October, when releasing the code of ethics guidance, that the code would “reflect community expectations that the provision of professional advice be centred on serving the best interests of the client free from any conflict”.
In response to this, the paper stated: “It is not obvious to us, other than the fact that it was mentioned in the royal commission final report, that it is a community expectation that all financial advice be free from any and all conflicts.
“Despite being required by the Corporations Act, FASEA never consulted on this requirement to avoid all conflicts.
“Standard three and the statements in the media release seem pretty clear, in that FASEA wants to ensure all conflicts are removed from financial advice. It is most probable, however, that they do not fully understand what this means or the unintended consequences.”
To illustrate this last point, the AFA highlighted that 57 per cent of financial advice practice income in 2019 came from commission income, including grandfathered trail and life insurance, and asset-based fees were at risk as a result of standard three of the code.
As a result of its wide-ranging concerns, it also stated the current code was unworkable in its present form and its implementation had to be delayed until a workable version was produced.
“We have clearly reached the point, where it is obvious to all, that change is required and FASEA needs to deliver on this change to make the code workable,” it said.
“Standard three needs to be fundamentally changed, with the ban on conflicts of interest removed and a number of the other standards needing material change.
“It is unfortunate that the FASEA board have sought to use this as an opportunity to rewrite the law that applies to financial advice, rather than use this as an opportunity to provide sensible guidance to the financial advice community with the development of a code that is both practical and consistent with the best interests of clients.
“The financial advice profession has no choice other than to oppose the code of ethics in its current form and ask the government to deliver a delay in the commencement, whilst these critical issues are resolved.”
The AFA and Financial Planning Association have also been critical of the process used to create the code claiming FASEA did not consult with the adviser associations ahead of its release on 18 October.
