AFA consulting with advice profession to provide better outcomes

Brad Fox – CEO – AFA

The Association of Financial Advisers (AFA) has been working with key advice profession stakeholders to achieve a more workable approach to the new Future of Financial Advice (FoFA) Code of Conduct requirement. 

AFA CEO Brad Fox said the AFA is looking for a practical approach to the issue that addresses the deep complexity and extended timeframe.  “The first opt-in obligation does not kick in until July 2015, so the industry has the time to get this right,” he said. 

Mr Fox said the AFA recognizes the central role that codes of conduct play in guiding the financial advice market in the direction of increased professionalism.  “Codes of conduct set expectations for behaviour and are critical in ensuring client outcomes,” he said.  “However, the opt-in exemption, which is about getting an exemption from the law, means they are morphing into something else.”

This marks a different approach to client engagement, Mr Fox said.  “There are significant implications that flow from this approach and the industry needs to take the time to get it right.”

Mr Fox said the AFA holds the view that Australia’s stringent financial planning laws, together with practical professional body codes of conduct, will ensure an appropriate behavioural framework for advisers, however codes were never designed to be the law. “We believe codes should be about driving adviser behaviour; behaviour that builds consumer trust,” he said. “Designing a code to circumvent elements of the law is at odds with the intended purpose of professional codes – which are typically about how to apply the law to give the right client outcomes.”

Mr Fox said the AFA will be leading the profession to adopt best practice behaviours. “Our position on codes and in particular professionalism is that it is achieved through education, compliance to the law and most importantly, the behaviour of advisers,” he said. “Compliance to the law is the minimum standard, and it is a high standard following the FoFA changes. We do also encourage our members towards continual improvement and further personal professional development.  It’s the carrot rather than the stick approach.”

The AFA met with licensees and ASIC Commissioner Peter Kell at the AFA Licensee Leadership Forum late last month to discuss codes of conduct. “The AFA is acutely aware of the pressure advisers and licensees are feeling around implementing FoFA related changes,” Mr Fox said. “We are therefore very carefully considering the views of advisers and licensees in deciding whether the AFA should have a comprehensive code, that is ASIC approved, or whether it makes far more practical sense to have a two-part code with only the part relevant to obviating the need for opt-in approved by ASIC.”

Mr Fox said many advisers are probably not aware that if they elect to obviate the need for opt-in by belonging to an ASIC approved code that meets the requirements of RG 183, the measures may apply to each and every client of the practice, not just those who become clients after 1 July 2013.  “I think advisers need to know that so they can make informed choices,” he said.

A two-part code would mean AFA members are all subject to the core principles-based Part One code guiding professional behaviours. Members could then elect to belong to Part Two which would allow them to obviate the need for opt-in by applying additional service requirements across clients. “This appears to be a practical way of helping our members choose a code that suits their preferred business model and which is also compliant,” Mr Fox said, “However the option of a two part code will be subject to further discussions with, and consideration by, ASIC.  It’s an alternative worthy of consideration by advisers, licensees, and the regulator.”

Following the most rigorous debate and legislative changes affecting financial advice in 20 years, Mr Fox said he is confident that an adviser meeting the new requirements of the law will be doing a great job for their clients.  “As in all professions, there will be people who want to stand out from the crowd through exemplary behaviours, who go well above the minimum legal requirements. The AFA already has thousands of advisers like this,” he said. “Codes of conduct should inspire and honour that kind of behavior – they should not be instruments of law enforcement.”