Lower cost, better representation and a well-run industry are some of the key benefits that a unified code-monitoring alliance would bring for advisers, leaders of the proposed new body say.

The code-monitoring agreement, announced by the Financial Planning Association on Tuesday, brings together six industry associations representing a total of 15,000 advisers.

FPA chief executive Dante De Gori says the alliance has been in the works for a while.

“We’ve been talking with the associations this whole time,” De Gori says.

The FPA is joined in the agreement by the Association of Financial Advisers (AFA), Boutique Financial Planners (BFA), the Financial Services Institute of Australasia (FINSIA), the Self-managed Superannuation Fund Association (SMSF Association) and the Stockbrokers and Financial Advisers Association (SAFAA).

The FPA’s release states that, “a special purpose company Code Monitoring Australia (CMA) has been established…to operate the compliance scheme, which will be called the Financial Advisers Monitoring Scheme (FAMS)”.

SAFAA chief executive Andrew Green says the associations have been preparing the alliance “for around 12 months”, which pre-dates ASIC’s May confirmation that from January 1, 2020, advisers must comply with a code of ethics and be covered by a compliance scheme.

Green says the associations knew at an early stage that banding together to provide “a collegiate response” would benefit all parties.

“We all get together and pool our resources,” he says. “There’s a symbiotic relationship.”

The Code of Ethics itself has been drawn up by the Financial Adviser Standards and Ethics Authority (FASEA) to establish adviser standards for trust, competence, honesty, fairness and diligence.

‘No Sunday afternoon picnic’

Green says advisers would enjoy cheaper fees as a result of the agreement, as having six associations working together would consolidate resources and expertise.

“It provides [advisers] with the lowest unit-cost solution,” Green says, “while giving clients the best possible protection.” He adds that a scaled monitoring solution is an effective way to counteract the “unrealistic” speed of reform in the industry and a rapid increase in compliance costs for advisers.

“These are generational reforms, and unfortunately the timetable has been coalesced into a couple of years,” he explains, “so the aim is to get to a point where you have a cost-effective outcome for everyone.”

He warns that the costs for advisers to sign up to a code-monitoring scheme could be significant, due to the complexity involved in administering it.

“It’s early days, but this is a serious code-monitoring endeavour, so the cost will not be inconsequential,” He says. “This is no Sunday afternoon picnic, this is a serious code-monitoring exercise.”

By leveraging the scale of their combined member base – up to two-thirds of the country’s advisers, Green says – the associations can minimise spending and pass on the savings.

“A new scheme is going to cost millions of dollars to build,” he says. “Do we want to have duplications of resources across the industry and the associations when we’re going to be doing exactly the same thing?”

Taking charge

De Gori says the co-operation agreement would allow the profession to “take control of the process”.

“We think it’s an opportunity to build a code-monitoring scheme for the profession, by the profession,” he says.

The combined expertise of the associations, De Gori continues, would give advisers “a scheme that is built for them and understands them but still delivers on the intent of ensuring compliance to a code of ethics”.

De Gori notes that none of the associations has been approved by ASIC as code-monitoring bodies yet. In November, The FPA lodged an expression of interest with ASIC to “enforce and monitor” compliance schemes.

“All this announcement is saying is that we have signed a co-operation agreement to work together,” De Gori says. “Rather than us individually applying directly to ASIC on our own behalf, we’re applying together under the umbrella of Code Monitoring Australia.”

It is important that advisers understand the interplay between code-monitoring bodies and the new Australian Financial Complaints Authority, he says. CMA could not “provide compensation”, he explains, but there are scenarios in which an adviser could be dealing with an investigation from their code-monitoring body and AFCA at the same time.

“One will be a professional sanction and one will be a determination on compensation,” De Gori says. “Therefore, concurrent activity could occur where AFCA are looking at it from a sense of awarding compensation and CMA is looking at the individual’s conduct against the Code of Ethics.”

There is still much to be determined, De Gori admits, including how the new body would perform the monitoring function.

“That is part of the process over the next 12 months – building out how we do it, what processes need to be in place and what the structure is going to look like,” he says.

Conjecture also remains about what code-monitoring schemes are. Asked if they might involve things like guidelines, scheduled site visits or mediation processes, De Gori demurs.

“The short answer is that it’s still yet to be worked out,” he says.

Tahn Sharpe is a Sydney-based financial services journalist with a background in financial planning. He writes on advice, superannuation, investment, banking and insurance issues, is a certified SMSF Adviser and holds an Advanced Diploma of Financial Planning. Contact at tahn.sharpe@conexusfinancial.com.au
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