Here are four propositions with which nearly everyone in the financial advice industry will (or should) agree:

Proposition 1: Financial advisers should be trusted to act at all times in the best interests of their clients;

Proposition 2: The occupation of financial advice should be accepted as a genuine profession which voluntarily acts in the public interest;

Proposition 3: Financial advice should be cost-effective and accessible to the vast majority of Australians, not just to the minority who currently receive it; and

Proposition 4: The compliance requirements imposed on financial advisers is complex, costly, confusing, bureaucratic, demoralising, unnecessary and substantially ineffective.

Agreed? At least there’s some significant common ground between us (maybe more than many readers may have thought?).

So how can we move to a position in which financial advisers are always trusted, the occupation of financial advice is accepted as a genuine profession, the services of the new profession are cost-effective and widely accessible and the compliance burden on advisers is substantially removed?

It’s simple really. We should enthusiastically embrace the substance and spirit of the FASEA Code of Ethics.

Unfortunately, however, instead of supporting the code, many of the industry’s leaders have chosen to complain about it, especially about its alleged uncertainties. Standard 3 (the imperative to avoid, not just to disclose, conflicts of interest) has received particular attention from the complainants.

In so doing, they appear either to not understand the underpinning ethical obligations of a true profession or they don’t want to understand them. Therefore, it’s hardly surprising that so many of the industry’s participants are uncertain about the code and what it really means to be a professional.

Kicking it down the road 

Much of the limited public discussion about this subject has been emotional and lacking in rigour. Perhaps the price of professionalism is judged by some to be too high or commercially inconvenient. Could a better alternative be to fudge and obfuscate with tried and tested claims about ‘technical uncertainties’ and ‘unintended consequences’?

Alongside the complaining, there’s been no shortage of rhetoric about the industry’s strong commitment to professional ethics. This includes regular references to financial advisers being on a ‘professional journey’ which seems more like a mystery tour because the destination is rarely articulated. And to make the journey more interesting, there have been diversions along the way, including the need for education of advisers and the importance of individual licensing, both of which are worthy causes, but don’t get to the core of the problem.

All of this colour and movement has acted to kick the can down the road. Over many decades this approach has been shown to be an effective strategy to cause delays and dilution of urgent ethical reforms, especially with respect to conflicted remuneration. In fact, there isn’t an argument against reform in financial advice that hasn’t been heard and rebutted on countless occasions since the industry’s inception in the 1970s (yes, I remember).

The positive approach suggested here of embracing the substance and spirit of ethical principles in the FASEA Code will create unqualified trust in financial advisers, principally by removing the conflicted remuneration arrangements that have driven so much of the industry’s poor behaviour (as identified by the Hayne Royal Commission).

This will immediately cause the complex, costly, confusing, unnecessary and substantially ineffective compliance requirements to recede, thereby significantly lowering the cost of financial advice to many more Australians who will then be happy to seek out advice because they can both trust and afford it.

This solution is elegant, practical and simple. And most importantly, it will work in the interests of advisers and their clients, delivering a new profession akin to law, medicine and accounting.

Lateral thinking

In order to be assured of this outcome, the industry must be fully on board with the clear intentions of the code. Instead of complaining about its uncertainties, the industry should recognise that it is deliberately not a technically prescriptive compliance-style laundry list of what’s in and what’s out.

Instead, it is a principles-based document offering financial advisers the considerable privilege of engaging in an unfamiliar and professionally liberating mode of thinking about ethical principles and their consequences. This new personal, thoughtful and analytical approach to ethics is the hallmark of a true profession.

No longer would advisers have to stress about trivial and pointless details in a costly, suffocating, box-ticking compliance regime which they’ve grown to intensely dislike. Thinking about the Code of Ethics as black letter law that smart financial advisers and their creative lawyers may interpret, dilute and dismantle in their commercial interests, completely misses the point. That is an old, discredited and unprofessional approach to ethical standards and their behavioural consequences.

Having said that, the industry’s evolution into a profession is completely in our hands. We don’t need prescriptive laws, regulations, compliance rules, industry associations, lobbyists, enquiries, marketing consultants and spin doctors. We never did.

All that’s needed is the FASEA Code of Ethics and our voluntary compliance with its plain English words and clear intent. In that regard, I’m reminded of a longstanding professional standards expert in the accounting profession who often said to members seeking rulings on ethical issues: “If you need to ask the question, you already know the answer.”

Provided the industry acts with goodwill and in good faith, the discipline of financial advice can be readily and quickly transformed into the trusted, respected, independent, accessible profession that all advisers and the public of Australia want, need and deserve. The FASEA Code of Ethics presents a practical and realistic possibility of a new beginning.

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.
9 comments on “Remember that thing called the Code of Ethics?”
  1. Avatar Christoph Schnelle

    Martin Watson nails it “Yet we get treated as thieving salespeople who only care about a commission on a sale and regulated as such.”

    We do.

    We have as an industry engaged in unethical practices for too long and those who behave decently have allowed others to behave indecently. That indecent behaviour allows lawyers in and predisposes regulators against you.

    We allow product providers to call suitably qualified salespeople “financial advisers’ when the expressed and unexpressed guidelines are to sell the provider’s products.

    While we allow such practices, we will have the world against us.

    The FPA’s individual licensing proposal is the best way out of this situation. When each of us is fully and solely responsible for our conduct then others have less power to ‘nudge’ us.

  2. Avatar Melinda Houghton

    What a ridiculously simplistic view of a convoluted and complex problem. If the author is on the Government’s Financial Literacy Board it is no wonder we have so many issues with consumers and their understanding of what is going on.
    One of the issues we have in financial advice is the complex and unfair complaints system. Complaints need to go to 3 or 4 bodies to get different types of action, which then takes months or years with no fair or guaranteed outcome on either side. And yet the FASEA code that most consumers have never heard of is being held up as the answer to thte trust issues in the profession?
    Why would consumer’s trust a system that doesn’t adequately fix problems if they occur. And the same system is mistrusted by the advisers as well. If no one is happy on either side it is not really working is it? But the Single Disciplinary Body has no guidelines yet and no priority.
    And I would love to see in action the correlation between FASEA working and reduced costs and compliance requirements alluded to.
    Most financial advisers have ethics and try to do the right thing. The rest never plan to and never will, and FASEA won’t fix that.
    Consumers don’t even know what financial planners do. Let alone why it costs so much. FASEA does not address any of these issues.

  3. Avatar Martin Watson

    So I have a proposition for Mr Brown.

    Firstly, let me state that i wholeheartedly agreed with his 4 Propositions – in principle they are are valid and aspirational BUT reality is we are in a profession ruled by lawyers and uncertainty and a government that truly does not understand what it is we do – i would challenge that many lawyers, accountants and such also do not fully appreciate that we play a role in peoples lives that goes beyond sorting out a legal issue, fixing a past tax problem or the like.

    We make resounding differences to peoples lives by guiding them through the uncertainties of life, markets and estate planning to protect, build and transfer wealth to provide for more prosperous futures for clients and their families into the future. Yet we get treated as thieving salespeople who only care about a commission on a sale and regulated as such.


    It’s funny how we get told about ethics (yes ive now completed a university course in Ethics and passed my FASEA exam – so of course i am ethical NOW!) – you either are ethical or you are not – it is your actions and how they are viewed by society that will determine what is and isn’t ethical – and that changes over time as society changes.

    So my proposition? Mr Brown, explain to me HOW we can deliver advice more affordably?? Why super funds now want to provide advice as part of their product (gee am I the only one who saw Back To The Future when reading this recently?) – “maybe we should be able to provide full advice and not just advice on super?” – are you kidding me??? Why not study, gain experience, complete PD, become a member of an industry body and meet your FULL legal obligations like a Financial Adviser has to????

    Know you client (KYC) has been around since FSR (1996?)
    Acting in your clients best interest was drummed into me when i first got my PA (1996)

    24 years later and I need the latter to now become a Fiduciary duty? and the KYC doesn’t seem to matter.

    True advice needs to take into consideration ALL the clients circumstances – hell, in FASEA we even need to take into consideration the impact on the kids, grandparents and ex-wife!

    So Mr Brown, i would love your your next well constructed and thoughtful article to be about HOW advice can be delivered “efficiently, cheaply and effectively” while still meeting our fiduciary, legal, moral and ethical obligations to know our clients and act in their best interests???

    As a side note, “grandfathered commissions” – some of us borrowed substantial amounts of money to buy client bases on the understanding that “grandfathered” meant what it legal was defined as. Bill Shorten was even counselled that it would be “unconstitutional” if these commissions were removed. They subsidised the advice to many by the collected resources of many – kinda what industry super is now doing? I wonder how long the regulators will takerto work out that they ware in breach of their own obligations under FASEA??

    Carve outs only serve to benefit a few (industry super fund management) at the expense of the many – i look forward in 10-20 years time when this reality sits in and the finger pointing starts again at who was to blame – no wonder the banks ran when they had the opportunity as they saw the risk of being in advice as far too great!

  4. Rather than setting up another level of cost and bureaucracy for an industry in rapid decline this whole ethics issue could surely have been implemented in a more simplistic manner.
    I have no problem with an exam for new entrants to set out the industry’s expectations for conduct and professionalism. Assuming the industry can attract new entrants.
    I have a problem in forcing existing advisors to sit an exam en masse when online CPD surely could have achieved the same result if not better.
    If we keep setting new barriers for experienced advisors then the exodus will continue.

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