Advice in 2021, part 1: professional standards

With FASEA’s funding due to run out and a new disciplinary body to be introduced as per the royal commission’s recommendations, the future of adviser professional standards were always going to be front and centre in 2021. 

But with the government’s decision to disband FASEA and roll its powers into both Treasury and ASIC’s Financial Services and Credit Panel, there are even more questions as to how the FASEA standards will be monitored and administered this year.

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Synchron director Don Trapnell said the authority’s most recent code of ethics guidance, released in October, had “raised more questions than it answered” in terms of how licensees should practically interpret the code.

“All of a sudden risk commissions have been brought into the code of ethics, so you have to get clients to agree to [previous] commissions,” Mr Trapnell said.

“Standard 4 now specifically includes risk commissions and says you must seek informed consent, but when you did the insurance policy initially you gave either a customer advice record or a statement of advice which clearly set out the terms of engagement, so why would it indicate you’ve got to go back to a client and do it again?”

Mr Trapnell said the inclusion of historic risk commissions in the standard may demonstrate that FASEA “has its own agenda” in relation to retaining commissions in life insurance advice, which is under threat from the forthcoming ASIC review of the LIF settings.

“FASEA is making an effort to have its own agenda in relation to the ongoing risk commission system, and I don’t think that’s the purview of FASEA,” he said. 

“If you remove renewal commission from an insurance policy, the premium does not alter in any shape or form. Commissions are paid by the provider so the product stays on the books and the adviser has the revenue to be able to handle the few customers that make a claim.”

Another contentious issue within the guidance is scaled advice. Lifespan Financial Planning chief executive Eugene Ardino says despite statements that scaled advice is allowed under the code, the ultimate wording of the standards themselves still suggests otherwise.

“If the client wants advice on one small thing, like insurance or super, you should be able to drill in and provide advice on that area without broadening it,” Mr Ardino says. 

“The difficulty with that is parts of FASEA seem to want you to widen the scope of your investigation and the things you have to consider, which makes giving limited scope advice difficult because there doesn’t seem to be a way to limit file keeping and breadth of investigation. 

“It makes it more costly and more time-consuming to be able to deliver a simple piece of advice.”

Then there’s the fact that large swathes of the industry still see Standard 3 of the code as unworkable, despite attempts from FASEA to clarify its application in a real world sense. 

CountPlus chief executive Matthew Rowe, who was a founding board member of the standards authority, believes the wording of the standard needs to be amended, which remains a possibility now that standards setting powers have transferred back to the government.

“We have put forward strong views and feedback particularly about Standard 3. I think it is very hard to work with and should be changed, and I think it should go back to its original format when it was first released for consultation when I was on the board,” Mr Rowe said.

Looking towards the other FASEA standards, with advisers being given a reprieve from exam requirements through the deadline extension to 2022, Sequoia Financial Group director Garry Crole says this has been good news in giving older advisers more time to consider whether they really need to leave the industry.

“Most advisers are still focusing on the education piece, completing the FASEA exam and moving towards their degrees,” Mr Crole said.

“You have some of the oldies and many dealer principals who are getting a bit older, but I think even the oldies are starting to lean towards being prepared to do more education than they were 12 months ago. We are certainly feeling that, because it’s difficult to know where the next advisers are going to come from.” 

Mr Crole says more work also needs to be done on the professional year, where requirements are often cost-prohibitive for practices already dealing with large amounts of regulatory change.

“That’s something we see as an area of challenge – where are the young advisers going to come from?”, Mr Crole says.

“The gap year and things being introduced are not easy, and not too many people are prepared to offer that to individual advisers. It’s hard to pay someone X amount of money to not be able to see and engage with clients.”