FASEA has right words, wrong form for conflicts

FASEA conflicts

FASEA has the found the right words to address conflicts of interest in its Code of Ethics but has mangled their delivery, claims one industry body.

The Financial Adviser Standards and Ethics Authority (FASEA) should adopt the wording it uses when talking about the intended outcome for its standard on conflicts of interest and not the more difficult wording it has put forward, according to the Stockbrokers and Financial Advisers Association (SAFAA).

SAFAA chief executive Judith Fox said the association supported the revision of Standard 3 of the FASEA Code of Ethics, which relates to conflicts of interest, which the authority recently opened for a further round of industry consultation and feedback.

‘’The current wording of Standard 3 prohibiting a financial adviser from advising, referring or acting in any other manner where they have a conflict of interest or duty is unworkable in practice, particularly in light of the lack of a test of materiality or proportionality,” Fox said.

“The correct legal and ethical position is that it is only when a client’s interests cannot be prioritised that the conflict must be avoided.”

In its submission to the consultation, Fox said FASEA had taken this approach in its own wording used in the intent to the standard, which states: “Advisers must not advise, refer or act in any other manner where they have a conflict of interest or duty that is contrary to the client’s best interests.”

Instead, FASEA proposed, in the first of three options, that Standard 3 be changed to: “You must only advise, refer or act where you do not have a conflict of interest or duty, being that which could reasonably be expected to induce you to act other than in the client’s best interest.”

Fox said: “We welcome FASEA putting forward an option that clarifies that a conflict of interest only exists when the adviser acts in a manner contrary to the client’s best interests.

“We support option 1, but we query why the proposed wording needs to be more complex and less accessible than FASEA’s intent.

“The aim surely is to be as clear and concise as possible to facilitate compliance with the standard. We urge FASEA to provide less complex wording by using its own language in the intent.”

SAFAA also rejected option 2, which blocked any benefit or relationship that could reasonably be expected to influence advice or services provided, as it would prevent stockbrokers and investment advisers from having any relationships with research analysts or receiving reports from them or distributing them to retail clients, effectively curtailing a key source of information for retail investors.

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