FASEA released an adviser guide on Monday to assist them in understanding, interpreting and applying its code of ethics.
But in a note sent to members yesterday, AFA chief executive Philip Kewin referred to the guide as “simply impractical”, particularly when applied against FASEA’s Standard Three regarding advising without conflict of interest or duty.
Mr Kewin took issue with a section of FASEA’s adviser guide that states:
“The making of the Code and changes to education and training standards, reflect community expectations that the provision of professional advice be centred on serving the best interests of the client free from any conflict.”
“This is tantamount to FASEA creating its own laws, way above the current law,” Mr Kewin said.
“We simply do not understand how it is possible, when the Corporations Act only requires conflicts to be managed, and the law specifically permits life insurance commissions and other conflicted arrangements, that FASEA could issue a Code of Ethics that is binding on all financial advisers that appears to completely ban conflicts of interest.
“Any expectation to totally remove conflicts of interest is simply impractical. FASEA clearly do not understand the extent of conflicts in financial services, the impact that their removal would have, or appreciate how conflicts are managed to ensure that advice is provided that is in the best interest of the client. Conflicts exist in many different ways and not just with respect to remuneration.”
Further, AFA said the guidance on Standard Three creates more confusion with respect to asset-based fees, in particular the section stating:
“Other sources of ‘variable income’
“You will breach Standard 3 if a disinterested person, in possession of all the facts, might reasonably conclude that the form of variable income (e.g. brokerage fees, asset based fees or commissions) could induce an adviser to act in a manner inconsistent with the best interests of the client or the other provisions of the Code.”
“It is our view that this statement has added significant additional uncertainty, including in areas where there was no previous confusion. It is unclear how this test would be applied,” Mr Kewin said.
“The code should be focused on improving the outcomes for clients. This ideological focus on the removal of all conflicts will make financial advice more restricted and costly, which is not in the best interests of clients.”
Finally, the AFA said it will continue consulting with FASEA towards the end of this year to advocate for change and to ensure greater clarity, including:
- Seeking a blanket statement that the receipt of a commission for the provision of advice on life insurance is acceptable;
- Clarification and greater flexibility with respect to referral arrangements; and
- Clarification regarding the need to obtain consent from existing clients as soon as practicable, in order to continue to receive remuneration.
One of the most sickening aspects of this whole ordeal, is that individuals who are unelected are unilaterally re-writing law established by elected officials and cannot uphold the ethical standards they themselves have imposed. When an exposeé is eventually undertaken about the conflcits of interest abundant on this board who has both established and will enforce standard 3, well it has the makings of a public scandal. It’s there in plain sight at the moment, will just take the right journalist to deal with the issue in the right publication. It’s actually a matter of national significance. We as Australians do not want people above the law in this manner and abusing the sacrosanct positions they have been given in vital public institutions, regardless of what indsutry it is. This will.embolden the
[quote=Anon]You start by saying there is no conflict and then give a perfectly good situation where advisers are conflicted. The BID will not stop this.
If, as you say, there is no difference between asset based fees and fixed fees, why not stop charging asset based fees and stop the conflict? [/quote]
I suggest you re-read what was said. In particular, “There is no more of a conflict in charging asset based review fees” is not equal to saying “there is no conflict”.
Also it was not said that “there is no difference between asset based fees and fixed fees” as you suggest.
The point is that the conflict continues to exist with charging fixed review fees so by changing asset based review fees to fixed review fees, the conflict is not removed.
Care to elaborate on your statement “The BID will not stop this”?
[quote=Anonymous]There is no more of a conflict in charging asset based review fees than fixed review fees.
An adviser could still be perceived as having a bias to recommending an investment over paying off debt if they will charge an ongoing fixed investment review fee which they wouldn’t receive if they recommended paying off debt. This conflict is handled by the best interests duty…[/quote][quote=Anonymous]
You start by saying there is no conflict and then give a perfectly good situation where advisers are conflicted. The BID will not stop this.
If, as you say, there is no difference between asset based fees and fixed fees, why not stop charging asset based fees and stop the conflict?
There is no more of a conflict in charging asset based review fees than fixed review fees.
An adviser could still be perceived as having a bias to recommending an investment over paying off debt if they will charge an ongoing fixed investment review fee which they wouldn’t receive if they recommended paying off debt. This conflict is handled by the best interests duty…
This has the potential to bankrupt adviser businesses, which in turn bankrupt dealer groups and leave clients displaced from their adviser..if this isnt given some transitional assistance it will be devistating to many
A lot of comments here are very unpleasant and reactionary. Is this helpful?
[quote=Where’s the conflict of intere]ASIC and FASEA are out to destroy financial planners. But that’s not surprising when the ASIC choose AustralianSuper as their default super fund for new employees. No conflicts there……[/quote]
Out of interest, how is ASIC choosing Australian Super through a tender process a conflict of interest?
Asset based fees are just another form of commission, and they should be banned. I know most here won’t agree with this statement, but that is solely because they are concerned about their own business. Unless the industry moves to 100% fee for service, it can never expect to be taken seriously.
this is what happens when pathetic bureaucrats take charge and get high on the POWER
The FPA & AFA recommended 7 of the original 9 names on the FASEA Board to the Minister. Look how that turned out.
well good luck trying to unscramble this egg…not impossible to see FASEA change things but really what morons have they got in there dreaming up this rot? Utopian policy is not helpful nor needed, just common sense guided by a practical and applicable approach…its not that hard.
ASIC and FASEA are out to destroy financial planners. But that’s not surprising when the ASIC choose AustralianSuper as their default super fund for new employees. No conflicts there……
When you read the comments of the FPA and AFA (in particular), you can just see them longing for the ‘good old days’. Sad really. Consumer expectations have evolved and will continue to evolve. Perhaps rather than hoping this will regress, maybe these industry bodies should be progressive and help design the future. Then again they haven’t been able to do so in the past so it’s hard to have confidence they could in the future. Perhaps it’s a function of who they have guiding them on boards and committees?
FASEA have basically told advisers they must terminate all commissions and asset-based fees within 10 weeks. For many financial planning practices, like mine, this represents more than 90% of our revenue. This is a disaster. The arrogance and ignorance of the FASEA board is unfathomable. How dare they destroy my business with almost zero warning. The job losses and destruction of capital will be unprecedented if FASEA is allowed to proceed with this nonsense. The 2 million consumers who rely on financial planners for financial security and peace of mind will be thrown into chaos. Has FASEA ever consulted with consumers about this? Have they looked at the impact on fees and the availability of advice? NO. This is all theoretical bullshit dreamed up by a board stacked with academics, with no real world experience or insight into the way we service our clients on a daily basis.
At this stage, if i have a risk only client that says” i dont want you advice anymore i would rather have the commission refunded” who is responsible to arrange the refund as i dont beleive insurer systems can turn off commission to reduce premiums. Maybe the insurer keeps the commission???
FASEA & FASEA Board must first fully disclose and then fully remove ALL their Conflicts of Interest.
The FARSEA morons continue to prove their complete lack of reality at every turn.
Well done AFA! Very similar to the ATO setting its own ‘desired’ policies then taken anyone to court objecting to their “above law’ rulings.
The AFA and the FPA seriously need to start working out what value they provide us members.