Somewhat lost amongst industry discussion of the impending increase in adviser education requirements has been the Financial Adviser Standards and Ethics Authority’s (FASEA) consultation on a new code of ethics.
All financial advisers will be required to abide by the code from January 1, 2020 and will need to choose a body to monitor their adherence to the code. This monitoring body will have the ability to apply sanctions to an advice provider for breaches of the code.
ASIC has released a consultation paper on how these monitoring bodies should be overseen. Monitoring bodies may face penalties if they fail to adequately monitor the new FASEA-authored code of ethics.
This increased regulatory impetus is why the new code of ethics should matter to every financial adviser. wealthdigital’s Technical Manager, Rob Lavery, believes it is important that advisers have their say on the final form of the new code.
“Not only will advisers need to adhere to the best interests duty, disclosure requirements and other black-and-white legal obligations,” Lavery said, “they will also have act in accordance with this less prescriptive code of ethics.”
“The draft code contains standards that are new to financial planning. The first is a requirement to act in accordance with the spirit of all laws and regulations.”
Lavery sees this as a broad requirement. “How is the spirit of a law determined? Is it revealed by the words of the politicians and review panels that may have recommended that law? Is it revealed by the explanatory memorandum that accompanied the bill? Is it identified by guidance from the regulatory body charged with enforcing that law?”
“This is not the first time that the spirit of the law has arisen as a concept when considering professional conduct,” Lavery continued. “Nonetheless, it is a far-reaching concept that advisers should question while they have the opportunity to do so.”
FASEA’s draft code of ethics also requires advisers to hold each other accountable for the protection of the public interest. Lavery sees this as a noble sentiment but one with challenging ethical implications.
In essence, if an adviser sees a colleague, or fellow industry participant, doing something questionable, they are required to report their suspicions to an appropriate authority.,” Lavery said. “If they fail to do so, they may fall foul of their code of ethics and be penalised.”
“Will this prevent unethical behaviour by requiring good people to say something?” Lavery questioned, “or will it engender mistrust between industry colleagues? It is another standard that should be discussed by those in the advice industry.”
The window for making a submission to FASEA on the draft code of ethics closes on June 1 and Lavery believes advisers should consider their response to the code. “This code will be more than the subject of compulsory study,” Lavery said, “it will be an enforceable set of standards that advisers will have to abide by. The time to help mould this important element of industry governance is now.”