FASEA CEO Stephen Glenfield says the Authority took a new approach with its second guidance document for the Code of Ethics, explaining the 12 standards and five core values in a deliberately clearer and more direct manner, with less legal speak and a focus on areas of contention raised by stakeholders.

And there’s more to come, he adds, with FASEA now sifting through 40 submissions in response to the latest guidance which will feed into another update before the end of the year.

While he believes the original October 2019 guidance document was “very useable”, Glenfield tells Professional Planner FASEA received feedback that advisers didn’t understand the standards’ reasoning and were “confused” about how to put elements of the code into practice.

“The overwhelming response coming back was that stakeholders would like to understand the intent of the standards and how you would apply them,” Glenfield says.

While some of the issues were dealt with in the ‘preliminary response’ to feedback FASEA published in December last year, this second version of the guidance changes the format completely; instead of using long-winded examples, each of the standards is broken down by their intent and how they’re applied, with short Q&As aimed at clearing up common misunderstandings.

“It was very deliberate,” Glenfield says. “ In the second version I wanted to get out something that was in very plain English saying ‘this is the code, this is the intent and this is how you can apply it in these circumstances’.”

Smoothing out the conflicts

In line with Glenfield’s desire for clarity, the latest guidance tackles issues like conflicts, referrals, commissions and scaled advice more directly.

Standard 3, which has proved the most contentious, approaches conflicts in a markedly different way. The first guidance document spoke of an industry “beset with conflicts” and outlined scenarios where advisers could be remunerated without being in breach. It was poorly received, inviting debate around what “duly remunerated” meant – especially with regards to insurance advice commissions – and whether a perceived conflict, rather than an actual one, would constitute a breach.

In contrast, the second guidance document makes it clear that the code is “concerned with an actual conflict”, and “does not seek to ban any form of remuneration, nor does it determine that particular forms of remuneration will always give rise to an actual conflict of interest or duty”.

This week the Association of Financial Advisers responded to the new version by repeating its charge that standard 3 is “unworkable”, primarily because insurance commissions constitute a conflict by their very nature, albeit one that is managed as per the Corporations Act.

The new guidance shows that standard 3 is very much workable, Glenfield believes. “We make the clear point that it’s not stopping commissions.”

The second version actually changes tack on the issue of providing advice to divorcing clients, which Glenfield readily admits came about after advisers explained the variable dynamics involved.

“There’s an example in the first version that was more definitive about not acting with divorcing clients, but it was clear when talking to stakeholders there were circumstances where you can,” he says.

Further clarification on standards

Aside from conflicts, the second version makes a couple of interesting updates that could affect the way advisers go about their business.

On standard 1, which tells advisers not to “avoid or circumvent” the code, one of the questions broached is whether advisers can accept referral fees via their licensee. The answer, it seems, is that the workaround still applies as long as it isn’t the sole purpose of the arrangement.

According to Glenfield, advisers just need to be careful that the set-up is in the best interests of the client. Using the workaround purely to benefit the adviser is a clear breach.

“There are all manner of business structures that are appropriate,” he says, “but ethically you shouldn’t be trying to get around the code.”

While much of the language is repeated in standard 2, which focuses on best interests duty, a new line is added that could serve as a warning to advisers relying on templated advice: “Considering each client individually is an ethical duty.”

FASEA also provide more affirmation in the second version that scaled advice is permissible. Glenfield says he felt it necessary, “to an extent”, to clarify this position.

“I wanted to bring it forward in this document that the Code of Ethics isn’t seeking to stop scaled advice,” he says. “But you have to be satisfied you have enough information about the client to know the advice is within the scaled service your providing.”

A ‘living, breathing’ document

Glenfield knows there are still issues with the guidance – the 40 submissions that have landed on his desk in the last month attest to that, as does criticism from the various associations in the industry.

The code’s meandering evolution doesn’t suit everyone; last week the Financial Planning Association welcomed version 2 of the guidance, but said it was “disappointing” that it came out ten months after the January 1, 2020 implementation date.

Yet the FASEA boss says he has maintained that the Code of Ethics and its guidance documents are “living, breathing” documents, subject to regulatory change and feedback from industry.

Glenfield is circumspect about the next update, saying only that it should be out in December and is likely to include new information on standard 3 and scoped advice. While he’s not “locked in” to the decision, he reckons a third guidance document is more likely than another ‘preliminary response’ document.

In the interim, he says, it’s good that advisers across the country are talking about ethics and how it fits into their practice.

“We’re getting some good feedback, particularly from licensees, that the code is now a discussion point within businesses,” he says. “That’s what it’s intended to be.”

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 [email protected]
3 comments on “Glenfield: Standards clarified in a ‘plain English’ second effort”
  1. Avatar David O'Donnell

    I wonder if this is an example of clarity? Standard 3 states that, if a conflict of interest or duty exists, the adviser ‘must not advise, refer or act in any other way’, yet the first paragraph of Standard 3 guidance (page 17) includes the words ‘you may refer the client’ . In example 3 for Standard 1, a conflict (Standard 3 consideration) for the adviser (Carroll – top of page 13) is described and it states that Carroll can indeed act for the client by ‘avoiding’ the conflict. Both of these actions seem expressly prohibited by the strict wording of Standard 3. Also, imagine how it will look for Carroll on ‘lookback’ in 9 years and 11 months from now. Of course if the standard had been worded in such a way that it required the adviser to deal professionally with any conflict so as to remain objective and avoid bias, that would be different.

  2. This person is totally unfit for the role he is in. Lack of practical experience. Lack of empathy. Lack of business understanding. A true hack in every sense of the meaning. Never has so much been done by so few to screw so many! Resign now.

  3. Avatar Wayne Leggett

    Here’s a newsflash, Stephen. You can’t refer to version 2 as “clearer and more direct” if virtually the entire industry is discussing its ambiguity!.

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