I was aroused from my retirement slumber recently (I always sleep with one eye open), when I read with interest that only some of the directors of MFS Pty Ltd have been asked to pay $615 million to thousands of retirees who put their savings and trust in advisers’. MFS collapsed in 2008 owing investors $2.5 billion, and as ifa has reported at least two former directors are still operating in the industry.
Always good to read when the corporate cop ASIC is seen to be doing a good job. Indeed from time to time we read that yet another adviser has fallen foul of the law and is banned and fined, sometimes jailed – all good outcomes since tar and feathering became such a messy business.
When it comes to the financial services industry are we really serious about the meaning of a code of conduct, or are these mere words designed to placate the regulator and public that insists on seeing that a professional body should have a code of ethics?
Words can have powerful meaning, the message and intent engraved in granite in the case of the Gettysburg address.
But in our industry, are we to have mere words or an enforceable code?
This is an open question to industry associations, FPA, AFA, CFA, insurance council, bankers’ association: if you adopt a code of ethics, will your members behave?
The consumers expect so, but will you enforce a code of conduct? How many members of industry associations have been thrown out over the last decade by the association itself?
Our words: “Principles, values, standards, or rules of behaviour that guide the decisions, procedures and systems of an organisation in a way that (a) contributes to the welfare of its key stakeholders, and (b) respects the rights of all constituents affected by its operations.”
A well-designed ethics code should inspire and promote ethical values, and not just consist of a set of constraints, rules and violations.
The following questions should be asked when compiling a code:
- Is it legal and ethical?
- Can I explain it to my family and friends?
- Would I be comfortable if it appeared in the newspaper?
Which brings me back to the question of ethical behaviour. If the intent is to always act in the best interests of the client, then this should be the minimum standard that all advisers be measured by. If that test fails, so does the ethics and moral standing of the organisation.
Lawyers will put their spin on this but the intent is that advisers are to, at all times, act ethically. And if they do not then the organisation has to enforce the code, including banishing membership.
An open question: if an adviser is only being offered a limited approved product list, that lets say has only one product solution, are they acting in the client’s best interest?
If an adviser has a conflict of interest in recommending any investment, for example either they or their principle has a financial interest, are they acting in the client’s best interest?
My purpose in writing this is to encourage debate. 80 per cent of advisers in Australia are constrained with limited approved product lists and incentive to promote home brand product solutions, should they continue to be constrained under the same code?
Or is it more appropriate that a separate code be drafted so that consumers can fully understand advice that is not conflicted?
Otherwise the various associations will have a bust job each Monday morning enforcing the breaches of the previous week.
Brian Boggs is a retired financial adviser, a former NSW director of the AFA and current principal of Information, Learning and Implementation Pty Ltd.
Perhaps an alternative code of ethics for those advisers with restricted approved product lists,and conflicted interests in promoting their own platforms?
alternative code of ethics, so your ethics are flexible?
Stay retired Brian
Earlier in the year the FPA was questioned for naming and shaming members who were expelled for serious ethics breaches. The FPA has been expelling, publishing and naming for years where the protection of the public has required it. Who else does this!
Many other professional groups like the Law Society, Australian Health Practitioners Regulation Agency do this in the public interest to name just two…
Thanks Jape. My comments were intended to be consistent with the focus of the article – financial services industry associations.
As usual the product is the problem. Although I don’t wish to be completely pedantic in my commentary, the FoFA legislation does not cover the future of financial advice, but rather the future of financial product selection. Best Interest duty, the same.
If the industry wishes to become a profession, perhaps it should only provide financial strategy and no product selection.
Great idea Phillip, but when the client has received your great strategy, how do they implement it? How does the client know what’s an appropriate product to select that meets with your strategy? If the strategy goes off the rails because the client didnt implement appropriately, who’s issue is that? Yours or the clients? Is that in the clients best interest? Sounds akin to telling someone that a car is the best option for getting them from A to B but not checking to see that they can actually drive before letting them head off…
FPA has banned, suspended, terminated, fined and forced supervision and training on many members and this is publicly available on FPA website and in their magazine. Maybe Brian should do some research on the facts before writing about something he obviously knows nothing about.
Ross i’m sure we will all wait patiently to observe how FASEA will enforce the code ,lets ask why it has not been enforced historically?
There are cases of an adviser being suspended by FPA but the licensee supported the adviser (good volume bonuses) and adviser whilst having being flagged and CFP and membership suspended was allowed to continue operate – so ethics mean nothing. I cant say which bank !