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.

Robert MC Brown AM is a chartered accountant with more than 30 years’ experience in taxation, superannuation and financial planning. He is independent chairman of the ADF Financial Services Council, and a member of the government’s Financial Literacy Board.
5 comments on “Ethics advocacy a shortcut to less red tape”
  1. Avatar Jeremy Wright

    Robert, you are showing that your knowledge around conflicts of interest, is in actual fact, conflicted.

    You continue to say that Life Insurance commissions are a conflicted remuneration model. They are not.
    Your perception and ideology is in conflict with what the vast majority of Australians want.

    You are entitled to your opinion. In the case of Life Insurance commissions, you are 100% wrong.

    You espouse the virtue of rules, yet the Corporations Act, FASEA and the Regulators, all seem to have a different interpretation.

    Thousands of advisers have exited, many more thousands to follow and what we have now, is total chaos and an unworkable situation.

    Ivory Tower regulators and opinion makers who cannot clearly articulate a simple sets of rules to abide by, are a cause of the current disaster the Life Insurance industry is in.

    Ethics are inherent in good people.

    This naïve belief that passing a code of ethics, via a convoluted set of rules, will solve all problems and make our industry professional, is the stuff of fantasy and more red tape.

    Unethical people will always be unethical and that will never change until they are removed from the industry.

    What Robert is pushing, is more red tape, more cost and more restrictive conditions that no other Industry, including the Legal Industry, have to live under.

    We need clear, concise, fair rules and regulations.

    What we have now is the opposite.

  2. Martin a supply crunch is coming…they need to grant the extension to FASEA to avoid the blood bath on their watch.

  3. It is impossible to avoid all conflicts of interest…That should be obvious and if it is not you are kidding yourself and others.

  4. Code of Ethics via FASEA is one thing. I personally have no issue with having a code of ethics.
    The main issue is that there may not be many financial advisers left to actually implement or adhere to it over the next 18 months..
    The FASEA exam will push many advisers to simply leave the industry well before they otherwise would.
    Surely this FASEA exam could have been better thought out in regard to existing advisers in particular. Why could it not be part of our normal on-line CPD requirement. We are already used to online CPD training. Already our on-line CPD is full of ethics content almost to the exclusion of other normal day technical content.
    There are unlikely to many new entrants to this industry.
    Yet the industry heads full speed ahead to a very uncertain future.

  5. Avatar Christoph Schnelle

    Robert MC Brown has been out of the industry for too long. FoFA cost CBA $2.2 billion or some $1.3 million per adviser and the NAB $1.1 billion.

    At what level does Mr Brown consider legislation effective?

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