Three adviser associations questioned the direction taken by the Financial Adviser Standards and Ethics Authority (FASEA) in formulating guidance for a standard related to conflicts of interest, noting the standard remained unworkable and the guidance may have overstepped the boundaries under which it operates.
The Financial Planning Association (FPA), SMSF Association (SMSFA) and Association of Financial Advisers made submissions in late 2019 to FASEA regarding guidance released at that time for its code of ethics, which was released in February of that year.
The submissions, which were received by FASEA almost a year ago, were only released by the authority yesterday, and indicate the three associations were frustrated and concerned by the time it took to release guidance and the direction the development of the code had taken across 2019.
In responding to FASEA, the FPA noted the authority was bound by the Corporations Act and the guidance to the code of ethics sat outside the legal powers granted to the authority for setting standards.
“Like the explanatory statement [the legislative instrument that gives effect to the code], the guidance is not part of the legislative instrument and, therefore, not part of the code. Its role includes to provide a plain English explanation of the code, offer additional context and describe its likely impacts and effects,” the FPA said.
“However, FG002 [the guidance document] goes further than this. While it does not form part of the code, FASEA understands that practitioners, licensees, the disciplinary body with oversight of the code and AFCA (Australian Financial Complaints Authority) are likely to look to the guidance to determine how to comply with and judge compliance with the code. FASEA has used this guidance, in some cases, in an attempt to change or override the provisions in the law.”
The FPA recommended if the code of ethics was unclear or did not work in practice, it should be amended and the guidance to the code should not be used to introduce new requirements or override laws that have been approved through the parliamentary process.
Addressing the issue of new requirements, it noted in its submission the requirement under standard 3 of the code of ethics to not provide advice where there may be a conflict of interest was impractical and unworkable, and added without any proper process.
“It is unfortunate that the financial advice profession was not consulted on the wording in standard three with an outright ban on any conflict of interest or duty,” it said.
“This requirement suddenly appeared in the final version of the code of ethics legislative instrument that was released on 11 February 2019. Despite being required by the Corporations Act, FASEA never consulted on this new requirement.
“Standard three on conflicts of interest is completely inconsistent with the long-established requirements to manage and disclose conflicts of interest. Conflicts are very common in financial services and exist in ways that do not disadvantage clients. They cannot be completely eradicated and an outright ban would be entirely impractical.”
The SMSFA noted that despite the guidance, advisers were still left with no firm basis on which they could act in regards to conflicts and there was confusion between what FASEA’s stated intentions were for the code and what it actually states.
“The guidance does not ease or clarify concerns over the express wording of the standard ‘you must not advise, refer or act in any other manner where you have a conflict of interest or duty’. The standard is so plainly written that this was always going to be difficult,” it said.
“Our members continue to highlight a general misunderstanding that they believe FASEA is banning their current payments and remuneration structures which are currently allowable under the existing law.
“Advisers need to know, as specifically as possible, how an adviser can be remunerated and how referral relationships can operate.”
Recently, AFA policy and professionalism general manager Phil Anderson said a newly released second FASEA guidance document on the code had still not addressed industry concerns about standard 3 and conflicts of interest and more work needs to be done to clarify the extent and impact of conflicts of interest provisions.
