Euphoric reactions on social media hailing the downfall of the Financial Adviser Standards and Ethics Authority are missing the point completely. Those commentators appear to believe that FASEA has been an impediment to progressing the industry’s interests and that its termination will somehow improve their lot in life. However, they should remember that FASEA did precisely what the government asked it to do.

Whatever we might think of FASEA’s approach, it did the job comprehensively by prescribing mandatory tertiary education standards and issuing a Code of Ethics to which all financial advisers must adhere from 1 January 2020. Those outcomes are now embedded in the law and regulations for which Treasury has ultimate responsibility and which ASIC is required to administer in the public interest (not in the interests of financial advisers).

Some social media commentators appear to believe that the government’s decision to terminate FASEA is part of a larger strategy to wind back its pronouncements. As a result, ASIC will become much more accommodating and understanding of the industry’s commercial positions on all manner of subjects, including conflicts of interest, disclosure and commissions. I respectfully urge those who believe this (or who would like to believe it) to think again. I would remind them that the law cannot be diluted at the stroke of a pen or at the whim of a sympathetic regulator.

Of course, there will always be room for constructive criticism and suggestions for improvement, but the basic principles are there in plain English for everyone to read. That includes the controversial standard 3 of the Code of Ethics. It reads: “You must not advise, refer or act in any other manner where you have a conflict of interest or duty.” Given that the law is still in place, is anyone seriously suggesting that commissions, asset fees, profit shares and similar product sales incentives can co-exist with standard 3? Surely not, given the clear words in the standard.

And yet, in the absence (until now) of a policing mechanism, it seems that many industry participants have been ignoring the law and have carried on with ‘business as usual’ as though the law doesn’t exist. Astonishingly, some AFSL holders, who are legally responsible for the compliance of advisers, appear to have gone along with this behaviour and in some cases, appear to have facilitated or encouraged it. Who would have thought we would see the day when those who are legally responsible for compliance knew that advisers under their licences were acting in breach of the mandatory Code of Ethics and allowed those practices to continue?

My message to those industry participants who have been so critical of FASEA and have welcomed its demise is that you should be careful what you wish for. Instead of dealing with a small, relatively accessible and under-resourced body charged with prescribing standards, the industry will now be dealing with a large and bureaucratic government department (Treasury) with many other pressing priorities and a regulator (ASIC) whose duty is to administer the law as it is written (not as the industry would wish it to be) in the interests of consumers.

Both Treasury and ASIC will be well aware that a diluted or weakly enforced code will lead to more poor behaviour, more systemic malpractice and to more scandals, as recently revealed by the Hayne royal commission. They will also be aware that should this happen again the government of the day will not be able to escape criticism. They will wear it, fairly and squarely, and will deserve to do so.

Any attempt to lobby government and the regulator to accommodate the industry and its conflicted practices is bound to fail. So instead of complaining about an uncooperative government body which won’t tell them what they want to hear, I recommend that the industry’s leaders should adopt the approach which was flagged by FASEA at the outset.

Industry leaders should endorse the spirit and substance of the Code of Ethics and accept that there will be inconvenient commercial consequences for some of the industry’s participants. If they were to do that, many substantial benefits would follow. Most of the complex compliance rules would become unnecessary, the cost of advice would reduce, advisers would be trusted to act in their clients’ best interests and many more people would seek advice at a cost they could afford. However, to achieve this the industry’s professional bodies must demonstrate leadership by articulating a clear vision in support of the Code and its principles, not a compromised version of it designed to appease the vested and conflicted interests of some advisers within their membership bases.

I acknowledge that the above may not happen any time soon because most professional bodies have forgotten what it means to be a profession. In a world increasingly dominated since the 1990s by neoliberalism, professional bodies have become more like occupational guilds and lobbyists. They have been overwhelmed by the imperative to grow membership numbers, to offer member benefits and services, to defend or ignore poor practices of members who are destroying the public value of the professions from within and to appease noisy members who complain and threaten to resign if they don’t get their way.

There’s no shortage of high-principled rhetoric and inspiring spin coming from these bodies about the importance of professional and ethical standards, but there’s limited serious interest in disciplining members who breach them. The hypocrisy is breathtaking. In short, the professional bodies have been hoisted on their own petards.

My own profession of accounting is a leading offender. When it comes to financial advice, it has dropped the ball and shows no sign of redemption any time soon. Rather than criticising and even ignoring the mandatory Code of Ethics, the financial advice industry should acknowledge that FASEA has done it a favour. That’s because the principles-based Code offers a once in a generation opportunity to remove the unworkable, demoralising, costly and ineffective compliance regime. Furthermore, it shows the industry a clear and eminently practical path towards trust and professionalism.

If only we’d show the courage and leadership to walk it. Failing that, the industry is guaranteed to face an uncertain and discouraging future of more complex and intrusive regulation, more cost, more distrust, more scandals and no prospect of ever being treated as the true profession which it aspires to be.

8 comments on “FASEA’s demise: Be careful what you wish for”
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    Robert, I agree. However, it appears to me that some professions do not understand. How is it that lawyers can charge a percentage fee on a TPD claim, surely that is breach of conflicts of interest – in our practice, we do not charge any fee at all for helping a client (or non-client) make a TPD claim and I would like to think many Financial Planners do the same.

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    Jeremy Wright

    Oh dear, where do I begin.
    Robert, you have been down this path before and though some of your arguments are sound, there is so much wrong with the rest of your Utopian vision.
    You appear to be incapable of delineating, or dissecting your arguments into separate thoughts.
    As has been explained to you on numerous occasions, Financial Planning is so much more than one piece of advice that can be boxed up and presented, to end up with the same result.
    You continually talk about a Golden Chalice that is the Law and the Law must be obeyed without exception.
    You have not highlighted the holes in many of the Royal Commission findings that a truck could drive through and your blind obedience to a flawed set of Regulations that everyone, including the Government and the Regulators, who now seem to understand, that in the case of the Life Insurance Framework, have caused multi-Billion dollar losses just in the Life Insurance sector alone.
    Financial Advice fees have risen, so now the majority of Australians can no longer afford to pay for an adviser.
    A code of Ethics is so much more than a piece of paper, yet you seem to hold in awe, a flawed system that puts theory ahead of the real world of advice.

    If you are going to present an argument in favour of a flawed set of Regulations, then to date, you have failed in your summations.

    You seem oblivious to the absolute devastation that many of the Regulations have caused.

    The world is not made a better place by rolling over and blindly accepting what is wrong. It is a abetter place for us all, when some brave people stand up and fight, so the majority can receive a fair outcome.

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    Steven Pugh CFP

    Robert, very noble of you to take the time to make comment. Most Chartered Accountants I have dealt with have been very ethical but not all and the same can be said about other professions like lawyers. There are some very big differences in financial planning businesses as best interest duties don’t seem to fall on other professions. Nor are there obligations for other professional to account for transactions with Austrac. Even when the obligations are there with big businesses they have been found wanting. The big players in all of this have been banks, AMP who was the biggest supplier of superannuation in Australia and Industry Super Funds. Things definitely needed a shake up Robert no doubt and I agree with many parts of what has happened. The overriding thing to me is basically no directors or responsible persons have been pursued in any of this. Big business has driven our industry since day one and still is. The bonuses and overrides and commission were not invented by financial advisers and the payments made were with formal documentation and in legal terms of contract. Disclosure and best interest have always been at the forefront of MOST advisers in this industry. In my view the small operator doing the right thing has been crucified for the sake of public opinion and media beat ups. The Corporations Act has been shoved down our throats as the corporations themselves have run amuck. Robert you being an thoughtful person and would probably applaud the decision by government to update the Corporations Act. This Act I guess covers all who are in business and dealing with the public. So my question is IF FASEA is such a great ethical way of doing business that why does it not apply to ALL in this industry??? Financial advisers, accountants, lawyers, fund managers, researchers, business development managers, industry superannuation funds and why not the public service?
    I am sick to death of being told financial advisers are crook. ALL the people I call friends in this industry do the right thing and have done so for years. They have always put the clients interest first, been ethical not only in business but in their personal lives as well. It takes a special type of person who gives up their family time after normal working hours to travel to some other families home to help them with their financial and personal situations. Financial advisers are not the problem but the solution to many families who are in need of good advice. What is stopping financial advisers is the PI insurers, overwhelming paperwork and generally the myriad rules and legalities of giving advice. With the structure of AFCA, there is no consequence for frivolous complaints, in our group it costs about $20,000 for any complaint to be dealt with. In a parting thought advisers are responsible for any investment they make on behalf of a client. It is not the research house that all advisers must use, the institution that failed or the crook directors but the adviser. Robert thank you for your interest in financial planning and comments I enjoyed reading your letter you inspired me.

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    Paul Bursich

    Things don’t seem to be going to plan. Adviser numbers in free fall. The cost of advice skrocketing. One regulator scrapped completely the other in disarray. We may reach Robert’s version of financial advice Nirvana one day. The few remaining advisers will be flat out servicing the wealthy who can afford to pay. All the rest will have to fend for themselves.

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    Wayne Leggett

    The extent of the celebration on the announcement of the winding up of FASEA is completely understandable. This would not have been the case had FASEA done “precisely what the government asked it to do” as you assert, Robert. One of the biggest criticisms of FASEA, from both the industry and government, is the COMPLETE ABSENCE of a single bit of credit for prior experience other than formal qualifications., which was part of their mandate. Had they complied with this component of their brief, there may not have been such resounding applause at the announcement of their demise!

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    Thank you Robert. Couldn’t agree more. The sooner we as a group embrace the Code of Ethics and all work by what it stands for the better.

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    Dr. Angelique McInnes

    Hear, hear Robert M C Brown!!!! Please somebody has the courage to say what needs to be said. FASEA was a stepping stone to professionalizing financial advice, giving AFS Licensees and Financial Advisers time to start adjusting themselves, and their business models. Namely, to prepare for the change. The writing has been on the wall for a long time culminating with the RC. Those who have continued ‘business as usual’ will face unpleasant consequences for not accepting and preparing for what is coming. In my experience of a few decades in the world of work and business, any major change has its costs, like redundancies of old business models, policies, systems, procedures, and of course there are always negative financial implications. If AFSLs are still holding onto traditional business models, then they will end up redundant and without a business. Fortunately, not all AFSLs and advisers have been blind and apathetic in responding to albeit not so perfect FASEA’s standards and ethics. They are well-prepare and continue to prepare their business models for the changes and next phase of professionalizing financial advice (implementation of the single disciplinary body). Furthermore the argument that financial advice will be unaffordable due to the changes are ill informed. The other professions seem to service their clients (patients) from the mums and dads to the wealthy without a problem. Note, AI (Roboadvice) is here to cut the cost of service.

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    Les Batchelor

    Well written Robert. As a financial adviser with over 20 years experience, I fully endorse your comments!

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