FASEA guide ‘above the current law’: AFA
The recent guidance from the Financial Adviser Standards and Ethics Association goes “way above the current law”, especially in relation to addressing conflicted remuneration, says the Association of Financial Advisers.
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.
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