FASEAs Latest Guidance is No Help At All

Last week FASEA released another explanatory guide to try and address some of the feedback in public media and specifically to FASEA about the Code of Ethics. Compared to the previous explanatory guides from October 2019 which contained extensive examples in relation to each standard, this version contains generalised observations and one or two examples in relation to each Standard.

A few things to remember about the Code: it applies to individual advisers not to organisations. FASEA have said in public forums and in writing that the Code is intended to set a higher standard than is required under existing law. However, the Code has the force of law and each Standard is black letter law and must be complied with separately from each other Standard.

The pivotal Standard is Standard 3: “You must not advise, refer or act in any other manner where you have a conflict of interest or duty.” The law around conflicts of interest is well defined in a number of areas of law – for example the duty a lawyer owes their client. FASEA are trying to rewrite this to cover up the fact that Standard 3 as it is written today effectively makes it impossible to operate as an AFSL where the business owners are also advisers. But it does nothing to impede the salaried or institutionally owned advice model where the adviser is not directly affected by business success.

Quoting from the Explanatory Guide: “The Code relates to actual conflicts of interest.” “Standard 3 of the Code is concerned with an actual conflict between duties advisers owe their client and any personal interest they have or an actual conflict between duties they owe their client and duties they owe another individual or organisation.” FASEA’s ‘standard for judgement’: if a disinterested person, who knows all of the facts, could reasonably conclude that the arrangement could induce the adviser to act other than in the best interests of the client, then that arrangement gives rise to a conflict and is prohibited.

So, whereas the Corporations Act is quite clear that conflicts of interest may arise in the provision of financial services and must be managed, FASEA is creating wholly new ground with a blanket ban on conflicts based on an assumption that “could” equals “actual”.

This problem for advisers cuts across all aspects of an advice practice including ongoing advice fees, SMSF administration and quite a number of other areas for advisers who own their practice or have an interest in their license.

ASIC’s Chair James Shipton, responding to a question about advice on withdrawing from Super, said: “We certainly see the incredibly valuable role of financial advisers and financial planners right now.” Could an adviser receiving ongoing advice fees, who recommended their client not make a $20,000 withdrawal from Super, despite it being legal to do so, be deemed to have a conflict of interest? That will depend on what the disinterested person – or the single disciplinary body when we get one – could conclude.