Embedding clients’ interests ahead of all other considerations is a key feature of a new code of ethics released by the Financial Planning Association of Australia (FPA).
The code, released at the FPA National Conference on the Gold Coast today, contains eight principles, with placing clients’ interests top of the list.
“We think it’s a bit of a breakthrough,” says Jo-Anne Bloch, chief executive of the FPA.
“Under corporate law, your obligations around giving advice are around giving appropriate advice on a reasonable basis.”
Bloch says the concept of putting a client’s interests first has, under the law, “been a difficult concept to grapple with”.
“But putting your client first takes your [professional] obligation much higher,” she says.
“It isn’t ‘best interest’ because putting your clients’ best interests on the table is almost impossible under the current regulatory regime.”
Bloch says the code of ethics approach means the concept is “measurable and it’s achievable”.
The FPA has also pulled together nine existing sets of codes and guidelines into a single code of professional practice that will apply to all FPA members.
Bloch, says the FPA has made “an unequivocal commitment to putting clients first in everything we do”.
“We have also committed to streamline all our nine codes, rules [and] principles into one code of professional practice – one reference point for members, and the community, so that everyone understands just how high the bar is for FPA members, and what we actually undertake to do as members,” Bloch says.
Bloch says an ethics code that “clearly puts clients first [will] deal with the issues that have dogged this profession for too long”.
“It is a new phase for financial planning. It’s obvious, but it makes it absolutely clear that financial planners will put clients’ interests first in their dealings with clients.”
Bloch says that financial planners face a significant task in the year ahead to win back the confidence and trust of consumers who have been battered by the global financial crisis.
She says recent research, conducted by CoreData, found that the average planner has almost 400 clients, but actively services only 40 per cent of that client base. Clients that have regular contact with a planner are far less likely to leave that planner, so 60 per cent of the average planner’s client base is “at risk”.
Bloch says the research suggests that 54 per cent of people who have an active relationship with a financial planner are aware of the global financial crisis but do not hold their planner responsible. Furthermore, 90 per cent of them are “most likely” to continue their relationship with their current planner.
“It’s clear that when a consumer has a relationship with a planner on a regular basis, trust is higher, retention is higher and comfort is higher,” Bloch says.
“The value proposition works. But it breaks down when there is a token relationship – a ‘transactional’ relationship, perhaps – and we must take great care in the next short while to understand what this really means, and what impact this has on your business, and the profession, and the community.”
FPA Code of Ethics
Principle 1: Client First
Place the client’s interests first
Placing the client’s interest first is a hallmark of professionalism, requiring the financial planner to act honestly and not place personal and/or employer gain or advantage before the client’s interests.
Principle 2: Integrity
Provide professional services with integrity
Integrity requires honesty and candour in all professional matters. Financial planners are placed in positions of trust by clients, and the ultimate source of that trust is the financial planner’s personal integrity. Allowance can be made for genuine differences of opinion, but integrity cannot co-exist with deceit or subordination of one’s principles. Integrity requires the financial planner to observe both the letter and the spirit of the Code of Ethics.
Principle 3: Objectivity
Provide professional services objectively
Objectivity requires intellectual honesty and impartiality. Regardless of the services delivered or the capacity in which a financial planner functions, objectivity requires financial planners to ensure the integrity of their work, manage conflicts and exercise sound professional judgement.
Principle 4: Fairness
Be fair and reasonable in all professional relationships. Disclose and manage conflicts of interest
Fairness requires providing clients what they are due, owed or should expect from a professional relationship, and includes honesty and disclosure of material conflicts of interest. It involves managing one’s own feelings, prejudices and desires to achieve a proper balance of interests. Fairness is treating others in the same manner that you would want to be treated.
Principle 5: Professionalism
Act in a manner that demonstrates exemplary professional conduct
Professionalism requires acting with dignity and showing respect and courtesy to clients, fellow professionals, and others in business-related activities, and complying with appropriate rules, regulations and professional requirements. Professionalism requires the financial planner, individually and in co-operation with peers, to enhance and maintain the profession’s public image and its ability to serve the public interest.
Principal 6: Competence
Maintain the abilities, skills and knowledge necessary to provide professional services competently
Competence requires attaining and maintaining an adequate level of knowledge, skills and abilities in the provision of professional services. Competence also includes the wisdom to recognise one’s own limitations and when consultation with other professionals is appropriate, or referral to other professionals necessary. Competence requires the financial planner to make a continuing commitment to learning and professional improvement.
Principal 7: Confidentiality
Protect the confidentiality of all client information
Confidentiality requires client information to be protected and maintained in such a manner that allows access only to those who are authorised. A relationship of trust and confidence with the client can only be built on the understanding that the client’s information will not be disclosed inappropriately.
Principal 8: Diligence
Provide professional services diligently
Diligence requires fulfilling professional commitments in a timely and thorough manner, and taking due care in planning, supervising and delivering professional services.
