The industry has generally welcomed the release of the Australian Securities and Investment Commission’s (ASIC) regulatory guidance on codes of conduct, although the opt-in exemption continues to be controversial.
What is clear is that the Financial Planning Association (FPA) and Association of Financial Advisers (AFA) will respond very differently to the ASIC direction.
Initial reaction from legal sources was a code following the latest guidance could, in theory, be virtually identical in terms of practical application to the Future of Financial Advice (FoFA) laws.
“In some cases, a code may provide for a higher standard of conduct or practice than that required by legislation,” said ASIC in Regulatory Guide 183: Approval of financial services sector codes of conduct (RG 183).
“For example, a code provision may specify a longer cooling-off period, a shorter response time, or more prescriptive pre-contractual disclosure than is otherwise provided for in the legislation.
“As long as compliance with the code provision would not make it impossible to comply with the law, we will generally take the view that there is no inconsistency.”
For Claire Wivell Plater, managing director of The Fold Legal, the starting point on ASIC’s RG 183 is that financial sector codes of practice should contain a body of rules that set enforceable standards for an industry and delivers measurable consumer benefits. The standards should elaborate on, exceed or clarify the law.
“Certainly there is a place for a code to establish ethical principles and values and to articulate acceptable (and unacceptable) behavior,” she told Professional Planner Online. “To focus the industry on doing the right things for the right reason and express the industry’s commitment to a set of moral standards. If it would give people joining the profession a clear set of values to which they are expected to subscribe. In other words, put meat around the meaning of the word professional.”
Wivell Plater also noted that the Financial Planning Association (FPA) and Association of Financial Advisers (AFA) have taken very different positions on RG 183.
Divide and rule?
While the FPA is a strong supporter of the need for a comprehensive, ASIC-approved professional code, the AFA is still considering its next move.
AFA chief executive Brad Fox said the industry has time to evaluate all options and should not rush to a decision.
“We are pleased that ASIC has provided further clarity on how an authorised representative may meet their legal obligations through obviating the need for opt-in,” Fox said.
“Given that the opt-in obligation is still more than two years away from applying to clients, this clarity means that advisers and licensees can focus their attention on the far more pressing issues of compliance with fee disclosure statements and conflicted remuneration, enabling them to take the time to consider fully how they wish to be bound by a code of conduct and through which professional association.”
Fox added that the AFA is strongly supportive of codes of conduct but has identified a number of issues that still need to be addressed.
The AFA’s code queries:
• Whether obviating the need for opt-in requirements will apply to existing clients as well as new clients. The legislation only applies to new clients.
• How the situation will be addressed, if an adviser belongs to multiple codes.
• The mechanism under which a professional association obtains access to information on potential code breaches from licensees, EDRs and ASIC.
• The means by which members can choose to comply with the legislation, rather than a code, if this is their preference.
• How an ASIC-approved code can be developed and maintained with a cost structure that will make it financially attractive for advisers to elect to take up the code based exemption.
“For all these reasons, the AFA is giving active consideration to a limited code, which relates only to opt-in. This limited code would be subject to ASIC approval,” Fox said. “Limited codes do not prevent the existence of other strong, robust, comprehensive codes that do not require ASIC approval.”
Wivell Plater also has a few questions, speculating that there could be considerable confusion and duplication in enforcement if an ASIC-approved code replicated or extended the existing law.
“Who should be primarily responsible – ASIC or the Code enforcement agency?” she asked. “Who will fund enforcement of the code? Will advisers be willing to subscribe to a code if they have to fund the enforcement body?”
The bottom line is who will pay for all this? Costs of doing business are high enough with every type of “consultant” telling us what is to be done. And the consumer wants to pay less not more. Would this have prevented Storm?