It’s no coincidence that the word ‘ethics’ appears in the Financial Advisers Standards and Ethics Authority’s name. It indicates both the importance the government places on financial planners acting ethically and where a code of ethics can be presumed to sit among the standards body’s priorities.
Now that it has been made considerably clearer what pathways are open to existing financial planners for upgrading educational qualifications before the January 1, 2024 deadline, the industry can perhaps finally start to think more deeply about what else needs to be done, including for ethics.
First, let’s quickly recap of the educational standards. Proposed guidance FASEA issued last week makes it look very much like the absolute toughest path – that is, for an existing planner who has no relevant qualifications –will require completing a two-year, part-time postgraduate diploma at Australian Qualifications Framework (AQF) Level 8, with perhaps a one-year, part-time postgraduate certificate necessary beforehand to gain entry into the diploma course.
The suggestion that all existing advisers must hold a bachelor’s degree has been taken off the table. In truth, it was never on the table, and the Minister for Revenue and Financial Services, Kelly O’Dwyer, has consistently said the new rules do not mean every existing adviser must go out and get a degree. But the spectre of three years of full-time or six years of part-time study has now officially evaporated as an excuse to oppose the new standard. Completing a two-year, part-time course within the next six years is a substantially less daunting prospect, notwithstanding the potential cost.
This clarity creates, we hope, a bit of headspace for thinking about ethics reforms. Most notably, a single code of ethics to apply to all financial planners.
It’s not the development of a code per se that is likely to be the biggest hurdle. FASEA could take an existing code off the shelf, so to speak, and approve it. It set a sort of precedent for that in the way it adopted the Financial Planning Education Council (FPEC) framework for degree courses for new entrants to the industry. There was simply no point reinventing that wheel (though the standard may be tweaked in future), and the same could be argued of a code of ethics.
Whatever code FASEA finally approves, by far the greater issues will be monitoring compliance and what happens when a breach is detected or reported.
Under the Corporations Amendment (Professional Standards of Financial Advisers) Act, advisers’ compliance with the code of ethics must be monitored by an entity known as a monitoring body (there are no prizes for creative writing in the drafting of legislation).
A monitoring body must be approved as fit-for-purpose by the Australian Securities and Investments Commission (ASIC), and it cannot be a licensee or an associate of a licensee. (In fact, if a licensee is a “relevant provider”, as defined in the act, then they’ll be subject to the code themselves.)
The only code-monitoring body ASIC has ever approved is the Financial Planning Association (FPA), in relation to the association’s ongoing fees code, which FPA members can choose to comply with in preference to abiding by the letter of the Future of Financial Advice (FoFA) opt-in requirements.
The code of ethics represents a big step up in scale. Monitoring the compliance of a small number of advisers who voluntarily choose to comply with a code that covers only a small portion of their overall legal obligations is one thing; it is another thing altogether to monitor thousands of advisers’ compliance with a compulsory code of ethics that touches on every client interaction they have.
Most industry associations simply lack the resources and expertise to be approved as a code-monitoring body. Any existing association that today applied for such ASIC approval would fail. So right away there are a couple of issues that need to be sorted out. Where are the code-monitoring bodies going to come from? Which (if any) existing associations might choose to tool-up for approval?
And who, by the way, is going to pay for it all?
Breaching the FASEA-approved code and falling foul of a monitoring body is potentially a serious issue. Whereas an industry association might expel a member for breaching its code egregiously enough, it can’t prevent a former member from practising as an adviser. An ASIC-approved monitoring body, in contrast, has the weight of the law behind it.
In short, there’s a bit more to implementing an industry-wide code of ethics than initially meets the eye. And the deadline for compliance with the code is January 1, 2020. It’s just over two years away. That’s why the industry players – advisers, licensees, industry bodies, the regulator, FASEA and potential monitoring bodies – need to start talking to one another now about how it all might work.
This is the final Friday reflection piece for 2017. Thanks to Professional Planner readers, whose responses to these columns have been illuminating, informative and often hilarious, usually intentionally. It’s rewarding to have been given the space and the freedom to freewheel through the issues of the day, or week, somewhat untethered from the normal conventions of reporting (including, occasionally, the facts). Merry Christmas and Happy New Year to all.