More work needs to be done to clarify the extent and impact of conflicts of interest provisions in the FASEA code of ethics, with recently released guidance adding further confusion to what advisers are able to do, according to a professional association.
Association of Financial Advisers (AFA) policy and professionalism general manager Phil Anderson said despite two-and-half years of ongoing work on the Financial Adviser Standards and Ethics Authority (FASEA) code of ethics, more change was still required around standard three, which covers conflicts of interest.
Speaking at the recent AFA national conference, Vision 2020, Anderson noted the first two drafts of the code stated financial advisers should not obtain “inappropriate personal advantage” from their advice or referrals, but this changed in the third, and final, version of the code.
“We would support a ban on advisers being able to obtain inappropriate personal advantage as a result of advice they provide or referrals they provide,” he said.
“We can support that, but we wanted certainty around what inappropriate personal advantage was, but when the code was finally released in February 2019, standard three was fundamentally changed so now advisers ‘must not advise, refer or act in any other manner where they have conflict of interest or duty’.”
He said a second FASEA guidance document on the code, which addresses the issue of conflicts, did not clarify matters for the association and its members.
“The document released last week includes context on conflicts of interest, but there is still going to be confusion because it states ‘the code does not seek to ban any forms of remuneration’, but advisers must ‘be open to the possibility that certain forms of remuneration will always fail to meet the requirements of the code’,” he said.
“In effect it is stating it does not ban any form of remuneration, but some forms will need to be banned, and that does not provide the clarity we require.”
He also noted the language of standard three did not provide any scope for the provision of commission-based life insurance advice.
“In our view it is very prescriptive and if it came to a legal matter or a matter being considered by the Australian Financial Complaints Authority, the very tight wording would bind them to rule out any forms of conflict,” he said.
“We know that FASEA has provided guidance that suggests there is room for flexibility and they have provided detailed instructions on where it is okay to provide life insurance advice and receive a commission, but this will only ever be tested when it goes to the courts.”
