Scott Hoger

Clients that aren’t forthcoming about all required information leave advisers in an ethical tight spot due to Standard 6 of the Code of Ethics according to TAL.

Standard 6 of the FASEA code states “you must take into account the broad effects arising from the client acting on your advice and actively consider the client’s broader, long-term interests and likely circumstances”.

Speaking on an AFA webinar, TAL national technical manager Scott Hoger said financial advisers are not relieved of their ethical duty to look more widely at a client’s needs even if they aren’t providing enough information when asked.

“We haven’t seen what this looks like from an enforcement period just yet,” Hoger said, noting there isn’t an established precedent for an adviser breaching the standard in this context.

Hoger said the adviser has the responsibility because they hold in the power in the relationship with the client.

“If the client gives you the wrong information or not enough information for the advice area you’re looking to give advice in, it’s not on them.”

Standard 6 has been a matter of contention since the code was introduced due to its open-ended interpretation.

“In the absence of a crystal ball this is going to be a very costly exercise,” AFA’s chief executive Phil Anderson said in 2019. “You’re going to need to dig deep – deeper than you might have otherwise done – particularly if its only scaled advice that you’re providing.”

Objective reality

Hoger said determining what these client goals and objectives might be requires complete and accurate information.

“At the beginning you are trying to work out exactly what the client might need from a financial adviser and to determine the scope of advice you must have an understanding of what the client’s goals and objectives might be.”

They might explicitly mention what some of those goals are, Hoger said, but the adviser still has the responsibility to uncover the needs the client is unaware they have.

“Most clients don’t really know what they need or want especially when it comes to insurance. Your job is to identify not what the client explicitly seeks out but also help them work out what those other areas might be. You don’t have to give advice in those areas, but uncovering those needs are important.”

Safe harbour differs from code

Although the safe harbour steps have a similar requirement, Hoger said, the steps do have an out which the Code of Ethics lack.

“There is a corresponding requirement in corporations law through safe harbour to make sure you’re working with complete and accurate information, but of course, they do give you an out by saying if you make reasonable attempts to obtain the information and the client is not forthcoming you can provide advice.”

However, Hoger said the adviser must provide a warning to say to say the advice is based incomplete or inaccurate information.

“You don’t have that warning in the code because the code says you need to make an ethical decision as to whether the information you have is enough for you to proceed.”

2 comments on “Clients refusing info doesn’t excuse advisers from ethics obligations: TAL”
  1. Avatar

    I agree with Michael’s comments. The industry is still looking at the Code from the compliance focus it has operated under for a long time. The Code is about behaviour and requires the adviser to exercise professional judgement. It provides a real chance to move from an industry to a profession.
    Lets look at the actual standard. I don’t think it is as potentially far reaching as safe harbour step 7 as it refers to the advice being given, not the kitchen sink catastrophe scenario.
    Adviser competence should be such that the “known unknowns” are likely to be able to be identified in respect of the advice being sought and given. Advisers should be able to visualise the entire landscape of threats, opportunities and risks etc, even when it is limited or episodic advice.
    Unlike Step 7, I think S6 is sound.
    Sadly ASIC now hold the keys to the single disciplinary body but we will have to wait and see if it is BAU or, if there is a genuine change that empowers advisers to take ownership and responsibility for their advice.
    The disciplinary action for Code breaches should focus on education to bring adviser behaviour to a point where they look at their role through an ethical lens so problem solving and conflict management are able to be successfully navigated. The Code is about behaviour and perhaps this is why there is some resistance?

  2. Avatar
    Michael Miller

    I don’t think advisers who are giving good advice ought to be as concerned about standard 6 as the tone of this suggests.

    Both the CoE explanatory statement and FASEA’s October 2020 guide directly reference s 961B Corporations Act, suggesting the tests are very similar in nature.

    The October 2020 guide puts emphasis on likely circumstances and reasonably foreseeable events, noting that absolute certainty of the client’s future is not expected.

    The examples in FASEA’s FG002 document specifically relate to circumstances that might be described as “bleedingly obvious” in relation to illiquid, undiversified investments on the cusp of retirement.

    This also reflects that the only real action taken against advisers/licensees by ASIC in relation to s 961B is where the client’s circumstances were nearly wholly ignored in the pursuit of an outcome (eg, NGS Services), rather than an adviser who made enquiries that were reasonable but failed to foresee some circumstance that would have required a crystal ball to see in advance.

    Don’t ignore what’s staring you in the face, or obvious to a competent planner, and you’re unlikely to have an issue with Standard 6.

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