FASEA code guidance unclear for advisers

FASEA code ethics guidance

A third guidance document on the FASEA code of ethics has only added to confusion and shown the need for a drastic rewrite of the standards, two associations have claimed.

Ongoing efforts by the Financial Adviser Standards and Ethics Authority (FASEA) to provide guidance on the standards in its code of ethics have not made its operation clearer and driven calls for a rewrite of the code itself.

The SMSF Association (SMSFA) and Association of Financial Advisers (AFA) made the call in separate media releases related to the recent release of a third FASEA guidance document, which closed for consultation on 2 November.

The SMSFA acknowledged the third guidance document gave greater importance to the intent of the standards, which was previously unclear in the materials, but stated the strict wording of the standards was incompatible with it.

As such, the standards should be rewritten as the code would be the document advisers would have to rely on in the future, SMSFA chief executive John Maroney concluded.

“We support the broader intent of each standard in the code, but, in our opinion, the code would be improved if many of the standards were amended to reflect the ‘intent’. Ultimately, it is only the written code that is determinative, particularly years into the future,” Maroney said.

“The intent of standard 3, which references the ‘client’s best interests’ while the actual standard doesn’t, is a perfect example. Until the standards in the code of ethics are amended, the industry will continue to refer to the written code as determinative.”

In commenting on the document, the AFA released its submission to FASEA on the guidance, which noted the latest document did not replace two earlier ones but instead supplemented them, thus creating a total of 90 pages of guidance around the code of ethics spread across three manuscripts.

“The existence of three guidance documents, in addition to the explanatory statement and the actual code itself, presents additional and unnecessary complexity as FASEA’s expectations on certain issues seems to have changed with the interpretation contingent on which document a financial adviser reads,” it stated.

“It remains our view that the code itself needs to be reviewed, rather than just focusing upon the delivery of multiple guidance documents, which merely adds to the complexity.”

Both bodies were also critical of the absence of any guidance around the application of the code to single-issue or scaled advice.

Maroney said: “We believe a key challenge for the advice sector is how to service clients’ advice needs that may be limited to a single issue or for scaled advice needs, for example, superannuation. This is particularly pertinent for SMSF advisers and SMSF trustees.

“Therefore, we support that aspect of the guidance that says the code is not seeking to prohibit this type of advice – only to ensure that it is provided where appropriate.

“However, we believe the guidance needs to provide advisers with clarity on ‘how’ this type of advice can be provided. The way the standards apply practically for advisers acting under a scoped authorisation or a limited AFS (Australian financial services) licence remains unclear.”

The AFA noted the lack of guidance on this area was poor as the need for more advice increased.

“Given the increasing debate on the significant challenges that the financial advice profession faces with respect to the cost of providing financial advice, as well as the barriers to the accessibility of financial advice for everyday Australians, it is disappointing to see no acknowledgement of these issues in this guide,” it said.

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