How FPA cracked the code: Deen Sanders

The Financial Planning Association of Australia (FPA) has released draft modifications to its code of professional practice that it says “fix” the contentious issues of scaled advice, opt in and best interests.

On the same day that the Australian Securities and Investments Commission (ASIC) released Consultation Paper 191, Future of Financial Advice: Approval of codes of conduct for exemption from opt-in requirement, the FPA has released its own consultation paper calling for members’ views on a proposed revamp of the association’s code.

At the core of planning

The FPA’s chief professional officer, Deen Sanders, says the modifications are designed to place the code at “the core of what it means to be a professional financial planner”.

He says it has been structured so that any practitioner who fulfils the obligations of the code will also discharge all of his or her legal obligations under the Future of Financial Advice (FoFA) amendments to the Corporations Act.

“We would hope that in meeting the code, you actually are meeting all those requirements,” Sanders says.

The FPA already explicitly addresses the issue of conflicted remuneration through its remuneration policy.

“We think we have fixed best interests, we have fixed scaled advice and we have fixed opt in with this modification,” Sanders says.

“Satisfying our expectations in that area will satisfy or exceed your [requirements in law].”

In coming days, Professional Planner Online will examine in more detail how the modified FPA code addresses and satisfies planners’ scaled advice, opt in, best interests and conflicted remuneration obligations under the Corporations Act, including FoFA. To download a copy of the FPA’s consultation paper, Modifications to the FPA Code of Professional Practice to incorporate FoFA, click here.

As a general rule, Sanders says that black-letter law is not a good way to govern professional relationships and a properly constructed code does the job far more effectively. Modification to the FPA code makes it clear which of the principles relate to which elements of FoFA.

Redressing a legal deficiency

According to Sanders (right), it is vital to place a code of practice at the core of the profession, to avoid problems that arise when professionals’ behaviour is governed solely by legislation.

“This is not just about Corporations Act; this is in fact about 12 years of incorrect law in relation to financial advice – or law that has misdirected us in the way financial advice works,” Sanders says.

“The way we have interpreted the Corporations Act – appropriately, by the way; we’ve interpreted it correctly – has as a consequence taken us away from our ideal view of what financial planning and financial advice really should be about.

“That’s not the fault of the industry or even the fault, necessarily, of ASIC or the government. It’s got a lot to do with the way Corporations Act is constructed.

“We’re talking about professionals, human beings and individuals who sit in front of clients who are human beings and individuals. But the law shapes that interaction through a corporation, and somehow that’s meant to guide the nature of this dialogue, this professional relationship. In no other environment is it done that way, that professional relationships between a human being and a human being are navigated through a corporation. And that’s been a challenge that we’ve been wrestling with for quite some time.”

Beyond discrete

The FPA applied to ASIC in February this year for approval of its code in part to exempt FPA members from the need to comply with FoFA’s opt-in provisions, but ASIC indicated that approval could not be forthcoming until key provisions of FoFA were settled.

“We were tasked, by ASIC specifically, to solve these problems: best interests, scaled advice, conflicted remuneration and opt in. Those four – that’s what ASIC said we need to address,” Sanders says.

“They wanted to understand our position on all of those things. A code doesn’t have to address all of those things, but we chose to say that as far as we’re concerned the whole concept of FoFA, and the biggest mistake with FoFA, has been the compartmentalisation of FoFA – that all these elements are seen as discrete elements in the law.

“ASIC [even] has different teams working on each of those elements when as far as we’re concerned, they are completely related.

“We took this as an opportunity to look at the way the code actually sits in its relationship with government and the law, rather than being this thing that’s always on the side that people occasionally pay attention to. It was really an opportunity to say we want to reframe the whole concept of talking about the code, so people for the first time understand the role of individual professional obligation and how that relates to the law.”

Code of protection

The FPA’s general manager of policy and government relations, Dante de Gori, says the association’s code is already seen as effective “protection” against adverse findings by the Financial Ombudsman Service (FOS). That orginisation’s investments, life insurance and superannuation ombudsman, Alison Maynard, has said that if financial planners follow the FPA code when dealing with clients, they “won’t have a problem” if they wind up appearing before FOS”.

In a similar way, De Gori says the modified FPA code is “protection” against the Corporations Act and FoFA.

“The code is the how-to for the law, as it’s the how-to with FOS,” De Gori says.

“The concern with some members might be, and some practitioners out there might be, OK, well, is this just another thing I need to comply with? As Deen is saying, we’ve got solutions here. If you follow the code, you’re definitely ticking off the fact that you’ve followed the law, but also – and FOS has said this already publicly a number of times – if you follow the code you won’t be in breach. It’s a solution for practitioners on all fronts.”

Reorienting behaviour

An effective professional code, Sanders says, must not “simply repeat the law”.

“One of the temptations is to just pick up the law and dump it in the code,” he explains. “But the law is a mechanical response and it’s licensee-specific. The way the law has been constructed is a mechanical response to the problems [the government] sees.

“Opt in, for example, is a mechanical trigger: at two years, it stops. What we’re saying is, what if [a planner is] providing the right sorts of services? The client is disadvantaged if it stops. So the issue, therefore, is about the right services, not about whether it stops.

“It’s a repositioning. The law, by definition, will always pick a mechanical response to these things.

“And professional standards operate on the opposite perspective of saying, let’s behave correctly in the first instance. Let’s behave properly from the beginning, and therefore you don’t need these things.”

Sanders says the code of practice is designed not only to take care of a planner’s legal and professional obligations today, but is also “protective against future changes to the law”.

“If you get standards right, there’s no need for this stuff to keep happening all the time. There’s no need to be writing [new] law, because the law will always have to come up with mechanical solutions to fix issues it sees in the marketplace. But what if there are no issues? What if, because as a group of professionals we reorient the behaviour so that the issues disappear?

“We’d argue the role of professions is to act as that sort of cartilage, if you like, the flexible fluid space between the law and the need for future growth and regulatory creep. That’s the role of a good professional code.”

Cracking the code

Sanders says the modified code “really is a substantial step forward in the life of the profession, motivated partly by FoFA, but motivated also by our readiness as a professional community to have the bigger conversations about the more important things”.

He says it has “arguably… been years in the gestation, because the ideas are that large and that substantive”.

“The paper hopefully captures our philosophy around the idea of professions and regulation as much as it does the detail of how we respond to FoFA and the relationship we’ve always talked about between professional regulation and legislative requirements, and the role of professions,” he says.

“It also realises that the conversation we’ve been having about being a profession has been on the back foot for 10 years.

More accurately, the conversation we’ve been having about the way financial planners engage in financial planning has been on the back foot for 10 years, because we’ve all been running along behind legislation and regulation and compliance, trying to get ahead of that conversation about what truly is financial planning, how is it distinct from financial advice and, importantly, how is it distinct from the Corporations Act version of what financial advice is. We think we’ve cracked that.”