The Financial Adviser Standards and Ethics Authority’s Code of Ethics can coexist within the current licensing regime but it’s an “ever-evolving assessment,’’ says financial services lawyer Selina Nutley.
The McMahon Clarke partner, whose firm acts for all players in financial services – including licensees, responsible entities, authorised representatives, advisers and clients – says the Code operates as an extension to the law.
“I’ve looked at the guidance [and] they say that this operates as an extension to the law,” she says. “This isn’t uncommon with codes of ethics.’’
Speaking on episode two of Professional Planner’s second podcast series Ethics for Advisers series, Nutley says code of conduct rules for lawyers act in a similar way.
“To me, the introduction of a Code of Ethics has come under some criticism from the industry, and from lawyers as well, but it helps that transition we’re all trying to achieve to a profession as opposed to a business,’’ she says.
“Right now the entire industry is in a watershed. We are seeing evolution and change, largely on the back of the Royal Commission, that I think we won’t see again for some period of time.”
Nutley says financial advisers working through the new Code of Ethics are trailblazers because they are first to interpret and see the limitations.
“As its application continues and people become familiar with the underlying values, we may see some changes to the guidance,’’ Nutley says.
“To the extent that there may be something in the Code of Ethics that says that you have to do that, it’s not necessarily in strict terms of the law, the higher standard will apply. I think they can coexist but the challenge is finding that right balance.”
Elements of Chapter Seven of the Corporations Act (2001), which deal with the provision of financial services, are “very much the licensee’s responsibility and the buck stops with them”, while other elements are placed on advisers directly, Nutley says.
“If the adviser does the wrong thing, then the licensee is still the one who is ultimately responsible. The idea of licensees stepping back to compliance monitoring or involvement in compliance with advisers, I can see, would terrify a great number of my clients.
“Equally I think there is something to be said with the advisers; sometimes there is a real tension with the licensee around what a licensee wants to do and what an adviser thinks they should be doing as the person that’s actually dealing with the client.”
Liability provisions would have to undergo a fundamental rethink for any licensees to embrace changes.
JB Were Technical Services Manager Kym Bailey, whose role is to keep abreast of new legislation, was among the first 600 advisers to sit the FASEA exam in June 2019.
Initially unhappy about further study, she was “hooked” once she explored financial ethics.
“The thing that was really obvious in 2019 was that the industry was in a little bit of shock because there wasn’t the support there to get people through this,’’ Bailey says.
“So I had to build stuff and really get into the coaching role with the advisers.
“We really wanted to hit the ground running and get this done and gosh, as it turned out, I’m glad the advisers did take this attitude,” she adds. “I wouldn’t want to be getting this done at this point in time.”
Bailey says the Code and the Corporations Act are, in some ways, incompatible.
“The Code is the responsibility of the adviser, and the Chapter Seven responsibilities seem incompatible,’’ she says.
“I think that in my experience with licensees, they have to do what they have to do and they don’t want ASIC breathing down their neck.
“This is the real challenge – advisers should start to exercise their professional judgement; they have to start to think about what the Code means for the client experience.”
FASEA’s Code is meant to be read together with advisers not to “cherry-pick” parts to suit a situation, Bailey says.
Nutley says she works extensively with financial advisers on ethical issues but providing them with guidance is difficult because links between law and the underlying philosophy are not there.
“Sitting directly outside of the coalface of profession, lawyers have the benefits of conduct rules, so we have something already and that underpins the way we need to treat our clients,’’ Nutley says. “That tick-a-box approach and the approach to adhering to the law does keep advisers from being able to step back and find what the obligation here is.
“We try to be quite pragmatic in the way that we give advice to our clients about that. It’s pervasive across the profession. We do create waves when we say: it’s all well and good to say you can act in the client’s interest but show that on a piece of paper that I can hold up if it’s ever challenged.”
Bailey says the Code should not become “another compliance obligation that advisers don’t want” and the case for independence for licensees is becoming more compelling.
“We want (financial advisers) to embrace (the Code) and to use it as an empowerment, to use that professional judgement element in their advice process, rather than just saying ‘tell me what I have to do and show me what boxes I have to tick’, because that’s not a good outcome for anybody,’’ Bailey says.
