Compliance, financial advice, Regulation

Ethical advice goes beyond compliance

SMSF advice ethics

When providing advice to SMSF clients, advisers should consider external factors as adhering to the Corporations Act may not guarantee ethical conduct.

SMSF advisers should consider more than just their obligations outlined in the Corporations Act when dispensing ethical financial advice to their clients, according to the SMSF Association.

Speaking at the industry body’s Technical Summit 2023 on the Gold Coast today, association head of membership and corporate development Neil Sparks reminded advisers that acting ethically when giving advice was not limited to acts of compliance.

“Ethics isn’t just about complying with the law. If you just followed the safe harbour steps in the Corporations Act, you will still potentially fail the good faith duty in the code of ethics,” Sparks noted.

“Acting ethically is different to the check-a-box approach of the Corporations Act.”

He proposed two tests advisers should consider when aiming to give their clients ethical financial advice.

“If we look at it from an ethics in practice perspective, we have the objective test, which deals in facts, is based on objective, consistent and impartial criteria that determines the legality of certain actions, decisions or activities and can include the application of statutory or case law,” he said.

“Really the question is, did you or did you not do something? The example I give is, did you run the red light? It’s a yes or no question. If you ran the red light, under the objective test, you have got a problem.

“The second element is the subjective test. This is where you start to bring in your thoughts, feelings, experiences and you bring your judgment to bear.

“So the case here becomes that your ethical decision will [consist of] both tests.”

He outlined an example to demonstrate how advisers might apply those two tests in practice.

“You will look at certain aspects of giving advice and there is going to be a black-and-white yes or no as it’s the law. [For example], can I at age 77 make a contribution to super? That’s a no because there are rules regarding that,” he said.

“You can’t then go on with your thoughts, feelings and emotions that make you think that it would be really good for the person in question to do it, so we [advise] them to do it. That’s not how it works, but other advice will be based on the combination of those two [tests].”

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