Liberal Party Senator and former Minter Ellison lawyer Amanda Stoker pressed FASEA CEO Stephen Glenfield on the practical implications of administering Code of Ethics Standard 3 before highlighting a lack of consultation on the controversial clause with ASIC.
During a Senate Economics Committee hearing in late October, Stoker’s cross examination of Glenfield got heated soon after she asked the former APRA executive: “Can you see that the second version is completely impractical?”
Stoker was referring specifically to the final version Standard 3 which stated: ‘You must not advise, refer or act in any other manner where you have a conflict of interest or duty.’
Glenfield stuck to the same guidance during the interrogation that FASEA offered within the guidelines it published in October, stating: “the code of ethics is read in totality.”
Not satisfied with the answer, Stoker, who is experienced in commercial law, including general contractual disputes as well as corporations law, pressed Glenfield on how conflicts which arise in light of common remuneration models might be handled.
“In looking at the service that you’re providing, there is nothing in the code that says that you shouldn’t be paid for a service that you provide, but that service that you’re providing, that you’re being paid for, should be fair,” Glenfield described.
“But that’s a different test,” Stoker countered. “You said three things. You said, first, ‘in the interests of the client’, then you said ‘fair’ and then you said ‘reasonable’. I tick off, I accept and I agree with you entirely on ‘fair’ and ‘reasonable’. I’m trying to understand what different thing you mean by ‘in the interests of the client’?”
Glenfield went on to explain that some commissions or payment methods wouldn’t be in the best interests of the client depending on their origins in relation to a product manufacturer.
“Well, it strikes me that there is very little intellectual separation or clarity on what you mean by any of those things,” Stoker concluded.
Stoker was joined by Greens Senator Peter Whish-Wilson, Australian Labor Party Senator Alex Gallacher and Liberal Party Senator Jane Hume, all of whom featured during the broad ranging hearing which saw Glenfield field questions relating to CPD, the exam, the Code of Ethics, code monitoring, the impact of new standards on consumers and the number of advisers likely to leave the industry.
Where’s ASIC’s submission?
Following this cross examination, Stoker went on to reveal that ASIC’s submission specifically relating to Standard 3 hadn’t been taken into account in the final guidance. She pressed Glenfield further on why these submissions weren’t made public.
“Did FASEA consult with ASIC on standard 3 and, if so, what did they say?” Stoker asked.
“No,” Glenfield responded. “FASEA conducted a broad consultation on the code of ethics and received large numbers of consultation around Standard 3, many of which were requesting a better clarity of the words for what was intended by Standard 3, and FASEA settled on the wording as it appears in the standard now.”
“Why hasn’t FASEA released any of the submissions they received throughout their consultation exercises?” Stoker asked, after pressing Glenfield on where she could find ASIC’s submissions.
“Are they publicly available?” Stoker asked again.
“I’ll take it on notice and check Senator,” Glenfield responded.
“Perhaps you can take this question—assuming I’m right, because I think I am,” Stoker responded.
FASEA is now in difficulties due to the shortcomings of the Royal Commission. The Royal Commission pointed out how rotten much of financial advice was but then showed its limitations with its lawyer-centric worldview. Many recommendations of the Royal Commission were sound but those around adviser remuneration where they went too far and conflicts of interests where they left FASEA in an impossible position by not going far enough are now creating headaches.
FASEA is trying to fulfil consumer expectations that, if you go to a financial adviser, you are not sitting across a salesperson but an adviser and the Royal Commission’s remit “Make financial advisers trustworthy but allow product providers to employ or license financial advisers”.
Those two are incompatible. Yes, some individual advisers can manage this conflict but overall I can’t see this working.