If you need to consult an expert about the meaning of an ethical standard, you already know the answer.
Understanding these words holds the key to recognition of financial planning as a true profession. Once achieved, the new profession can look forward to a substantial reduction of the stifling, costly and demoralising red tape under which it currently labours.
Getting there, however, will require an honest self-appraisal of our motives in disputing the application of the FASEA Code of Ethics, especially standard 3 which requires the removal (not just avoidance) of conflicts of interest, especially remuneration-based conflicts.
I recognise that for many advisers the demise of arrangements such as asset fees, life insurance commissions and certain profit shares on ‘in house’ platforms is an unpalatable outcome. Yet the sooner we accept it the better.
To be clear, the Code of Ethics trumps the Corporations Act by setting ethical standards for financial advisers above the minimum level of the box-ticking compliance rules in the law. Doing so is a principal purpose of FASEA. So for advisers to continue with these conflicted remuneration arrangements is a fundamental breach of the Code and therefore illegal.
In recent weeks, I have heard some pretty desperate rationalisations as to why certain arrangements are consistent with the Code. Illogical rationalisations are often proposed about why asset fees, platform profit shares and other conflicted product sales incentives are acceptable under the Code. Put simply, they are not.
Of course, given that the Code is principles-based and not prescriptive, the door is open for advisers to develop cogent arguments in support of their conflicted positions. These arguments will need to be extremely persuasive because they may well have to be made in court or with a professional indemnity insurer.
There is an alternative which is so much better for both advisers and their clients. That is, the industry ought to engage in the self-appraisal referred to above and be honest with itself. It should give up its tiresome, arguments in favour of the status quo and move on to a much better future in which financial advisers would be recognised as a true profession.
No longer would the rhetoric be hollow. It would have substance. Then the industry would be in a credible position from which to argue for the removal of much of the red tape about which it complains so loudly.
Decade after decade, the industry’s lobbyists have successfully worked to dilute well-intentioned reforms. An outstanding example of this process is FoFA, legislation which showed promise but achieved so little thanks to political compromises embedded in the law. A similar outcome occurred in the self-regulatory efforts of the accounting profession, thanks to the lobbying by special interest groups seeking to maintain ethically untenable positions.
The advent of the FASEA Code of Ethics presents the industry with the opportunity to rid itself of the red tape compliance load, the existence of which achieves so little, except perhaps to support a growing army of compliance officers and red tape experts.
The industry faces a stark choice between a highly regulated, increasingly demoralised and shrinking discipline of financial advice and a genuinely recognised, growing and profitable profession that voluntarily adheres to a Code of Ethics without the stifling overlay of complex compliance rules.
The choice is clear, and the industry’s leaders should get on with it rather than persisting with unwinnable arguments about ethical questions to which they already know the answers.