CPD: Listed investments and the ethical practice

The announcement of tariffs to be imposed by the US heralded increased volatility across global financial markets. In such an environment, investors may be more likely to scrutinise the advice they receive. This article, proudly sponsored by GSFM, examines the use of listed securities in an ethical advice practice.

When markets fall and bourses display a sea of red, investor’s fears are often magnified by the headlines and imagery that suggest the next crash is imminent. The current period of market volatility is no exception and while some investors see it as a time to take advantage and buy stocks ‘on sale’, others panic and wonder why they’re invested in listed securities. And invested they are.

Investment in Australian and global equity exchange traded products increased by 19.6 and 27.5 percent respectively over the year ended 31 March 2025^[1]. This continues the trend of investor interest in ETPs, an interest that has seen consistent growth in the number of available products and value of those products, despite the vagaries of market movements (figure one – left hand side). And, despite volatile markets over the past 12-to-18 months, that growth was largely the result of high levels of market activity (figure one – right hand side).

Listed securities is a broad sector valued at $2.092 trillion^[2]. As well as the ETP subsector, it includes:

• Shares
• Listed Investment Companies (LICs)
• Listed Investment Trusts (LITs)
• Australian Real Estate Investment Trusts (AREITs)
• Listed infrastructure funds
• mFunds

As investor interest continues to spur growth in the listed securities, it’s important that advisers are aware of their ethical obligations with respect to providing advice and recommendation about listed securities.

Listed securities and ethics

Financial advisers are guided by several frameworks when making financial product recommendations, including recommendations about listed securities. These are the law, the Financial Planners and Advisers Code of Ethics 2019 (Code of Ethics) and requirements and obligations from the licensee.

An adviser with membership of the Stockbrokers and Investment Advisers Association (SIAA) must also abide by its Code of Ethical Conduct, updated in February 2023. Like the Financial Planners and Advisers Code of Ethics, the SIAA Code of Ethical Conduct comprises a series of standards that advisers and stockbrokers are expected to meet.

As is the case with all financial product advice, all investment recommendations – whether for listed or unlisted investments – must be in each client’s best interests. Not only does acting in a client’s best interest underpin good advice, it is also essential to meeting the requirements set down by the Corporations Act 2001 and both Codes of Ethics.

Acting in a client’s best interests requires you to know and understand the intricacies of each financial product you recommend to a client. This includes the product’s suitability for the client and whether the client understands the intricacies of the product, including the associated risks and product costs. During volatile market conditions the conversation pertaining to risk is more likely to be scrutinised.

The rapid evolution in the availability of listed securities, in the number and variety of product available, has undoubtedly increased demand for listed investments. Consequently, the demand for financial advice in relation to listed securities has also increased.

The SIAA Code of Ethical Conduct

As previously stated, advisers who are members of the SIAA are required to abide by the principles and standards outlined in its Code of Ethical Conduct. The code, which is enforceable, prescribes the ethical conduct of members and applies to Stockbrokers and Investment Advisers Association Practitioner Members (individuals) and Principal Members (organisations).

The objective of the SIAA’s Code of Ethical Conduct is to:

“Maintain and improve ethical behaviour in the stockbroking and investment advice profession and the conduct of members of the profession with the consumers of their services”

The SIAA Code of Ethical Conduct is comprised of several principles that identify enforceable rules and provide guidance about ethical conduct, much like the adviser Code of Ethics. Figure two provides a summary of the SIAA Code of Ethical Conduct and outlines both ethical principles and industry specific issues.

As with the standards in the adviser Code of Ethics, the intent is that each should be interpreted broadly, rather than by strict and narrow interpretation.

The SIAA Code of Ethical Conduct requires that those members who are subject to other codes – such as the Financial Planners and Advisers Code of Ethics – the codes must be read and acted upon in conjunction. Further, it notes that a breach of any other codes may be taken into account by the SIAA when considering compliance of members with their obligations under the SIAA’s Code of Ethical Conduct. In other words, a breach of the Financial Planners and Advisers Code of Ethics could be regarded by the SIAA as a breach of its code.

The Financial Planners and Advisers Code of Ethics

The Financial Planners and Advisers Code of Ethics was designed to encourage higher standards of behaviour across the financial advice industry. It aimed to lift professionalism and ensure that all financial advice providers upheld and promoted these ethical standards. Importantly, it called on advisers and practices to hold one other accountable.

The Code of Ethics addresses five core values: trustworthiness, competence, honesty, fairness and diligence. It requires that financial advisers must, always and in all cases, act in a manner demonstrably consistent with twelve ethical standards that make up the Code of Ethics. These are summarised in figure three. These standards are regulated and monitored by ASIC’s approved compliance schemes.

The interrelationship between codes of ethics in practice

Following is a review of some of the key principles from the SIAA Code of Ethical Conduct and the interrelationship between those principles and the standards that make up the adviser Code of Ethics. The following discussion focuses on topics most pertinent to financial advisers recommending and/or transacting in listed securities.

Obey the law

The first principle or standard in both codes of ethics is to obey the relevant laws that govern the industry. These include legislation, statutory rules, regulatory and self-regulatory requirements.

As you know, laws are frequently revised and updated; it is therefore necessary for you to remain up to date, and incumbent upon your licensee to ensure that you and others in your practice do so too.

Honesty and integrity

That SIAA members must act with honesty and integrity, and in the best interests of their clients is consistent with standards two and five of the Code of Ethics. However, both honesty and integrity underpin most of the standards across both codes.

The requirement to not bring the profession into disrepute is consistent with standard twelve.

Respect the rights of clients

This requirement focuses on the notion of ‘informed consent’, particularly in relation to recommendations made (consistent with standard four) and fees charged (consistent with standard seven).

Competence

Continual innovation has resulted in significant growth in the number and types of listed securities available to Australian investors. This, in turn, has increased the need for advisers to maintain their knowledge and educate their clients about this sector. To recommend listed investments with competence, advisers need to understand the intricacies of all potential investments, including:

• The underlying investments
• The investment’s risk / return profile
• The investment approach (for listed funds or ETPs)

Recommending listed investments requires additional knowledge; advisers need relevant market and product knowledge and importantly, must understand and abide by market rules. All relevant information needs to be clearly communicated to clients.

The SIAA code requires members to take reasonable action to ensure that they have sufficient knowledge of stockbroking and investment advice practice, relevant legal requirements, and where relevant, the adviser Code of Ethics. Members are also expected to maintain this competence through continuing professional development; this is consistent with standard ten, which focuses on the development, maintenance and application of appropriate knowledge and skills.

Principal members of the SIAA must provide staff with information, training and supervision that enables them to do their work competently and comply with the law in the performance of their profession; the same expectation is levelled at AFSL holders.

Conflicts of interest

SIAA members must avoid and disclose conflicts of interest where reasonably practicable before or when the service is provided; principal members must minimise the potential adverse impact of conflicts of interest by having adequate arrangements for controlling such conflicts. This is consistent with standard three which requires licensees and practitioners to manage conflicts of interest.

Cooperation and whistleblowing

While the requirements for SIAA members are more detailed, they are broadly consistent with standard eleven, which requires advisers to cooperate with any investigation of a breach or potential breach of the Code of Ethics by ASIC or another monitoring body.

Fair and orderly market

SIAA members must compete fairly in the market, including not taking unfair advantage of other members and not engaging in anti-competitive or unconscionable conduct. Importantly, members must not knowingly engage or induce another person to engage in conduct that will or is likely to mislead or deceive in the performance of their profession.

There are several important elements to consider with this standard; advisers working with listed securities need to understand and manage of these risks, each of which could see them in breach of the law and, at the very least, in breach of standard one in the adviser Code of Ethics.

Some of the requirements to ensure a fair and orderly market include:

Best execution

ASIC’s regulatory guide RG-265 provides guidance on market integrity rules for participants of securities markets. In terms of best execution, the regulatory guide states:

Market participants must take reasonable steps to obtain the best outcome for their clients. For retail clients, it means best total consideration, which market participants may interpret as best price while there are not material differences in transaction costs between licensed markets.

This applies to trades executed via any exchange. There are additional rules applied in the case of trading derivatives. The notion of ‘best total consideration’ means that for buy orders, investors pay as low a price as possible. Conversely, for sell orders, investors should receive the best possible price. Best execution also means paying the lowest possible transaction costs and applies to all listed securities, whether a share, an AREIT or an actively managed ETF.

From the perspective of the Code of Ethics, these addresses acting in the clients’ best interests (standards two and five) and competence (standard nine).

Pump and dump

A form of securities fraud, ‘pump and dump’ starts with an individual or group who buys shares in a company and starts an organised program to increase (or ‘pump’) the share price. They often do this by using online forums, including social media, spread false news about that company’s prospects and/or to create a buzz. Once the price rises, they then sell (or ‘dump’) the shares and take a profit. Other shareholders suffer as the share price falls.

While not new, pump and dump activity has been on the rise, largely driven by social media and the rise of the finfluencer. In recent years, both this activity and the proliferation of the largely unlicensed finfluencers have been under increased scrutiny by ASIC.

It’s clearly unethical to engage in pump and dump activity; being able to recognise such schemes comes back to competence (standard nine) and always acting in your clients’ best interests (standards two and five).

Insider trading

Inside information refers to confidential, non-public knowledge about a company that could influence the value of a listed security.

Examples of inside information may include:

• Advance knowledge of unexpected changes in revenue or profit
• Plans for mergers or acquisitions
• Potential legal action involving the company
• Development of new products
• The awarding of major export contracts or key client accounts.

Access to inside information can give individuals an unfair advantage in the market. It is illegal to trade based on inside information or to share it with others who are likely to trade on it.

Even where a transaction using inside information is undertaken to benefit clients, using insider knowledge will breach the Corporations Act 2001, section 1043A and therefore a contravention of the first standard in the Code of Ethics, as well as the first principle of the SIAA code.

Strengthening investigation and prosecution of insider trading is on ASIC’s list of 2025 enforcement priorities^[4].

Case studies

The following case studies are loosely based on ASIC’s enforcement activities or AFCA cases; however, names and other details have been changed for privacy reasons.

Case study one: Insider trading for own benefit

Earlier this year, Melbourne-based adviser Anthony was indicted on two counts of insider trading following an ASIC investigation. Anthony regularly advised on and transacted in listed securities for his affluent client base.

ASIC alleged that Anthony sold shares in ACME Ltd in September 2023 while in possession of inside information regarding an upcoming share placement. He is alleged to have sold shares ahead of the placement and then repurchased shares at a lower price through the share placement. ASIC stated in court that his actions resulted in a profit over $200,000 and the loss avoidance of around $25,000.

The matter is listed for a plea hearing in the County Court of Victoria. While Anthony awaits the outcome of his day in court, his licensee has suspended him as an authorised representative.

Although Anthony’s actions were purely self-motivated and did not involve his clients, he contravened two important standards in the code of ethics.

Case study two: Failure to act in best interests

In this case, a complaint was lodged with AFCA by Adele, as sole director of the corporate trustee of her SMSF. Adele was a client of ACME Advice from 2010 to 2022, during which time the SMSF received advice on managing its investments.

Adele claims ACME Advice provided advice that was not appropriate for her SMSF because:

• She was incorrectly assessed as a ‘5’ risk tolerance investor and a large proportion of the portfolio was in listed investments
• It did not meet her goals and objectives
• ACME Advice had a conflict of interest in recommending a range of listed related entity investments.

ACME Advice said the risk profile was properly assessed, its recommendations were appropriate for the complainant, and it had disclosed all related entity investment recommendations.

AFCA found that ACME Advice incorrectly assessed Adele’s risk profile which resulted in her portfolio being overexposed to risk assets. This inappropriate advice caused her to suffer loss. In its determination, AFCA stated that ACME Advice had an obligation to provide appropriate advice, and it failed to do so. However, AFCA found that the related party investments – although not appropriate for Adele’s risk profile – had been adequately disclosed.

Since 1 July 2013, section 961B of the Corporations Act 2001 has imposed an obligation on a financial services provider to act in the best interests of the client in relation to advice, commonly referred to as the best interest duty.

The adviser will be able to demonstrate that they have done so by demonstrating that they have:

• identified the objectives, financial situation and needs of the client
• made reasonable inquiries to obtain complete and accurate information about the client’s relevant circumstances
• assessed whether the adviser has the relevant expertise to provide the advice (and declined to provide it if not)
• conducted a reasonable investigation into the financial products that might achieve the client’s objectives and meet their needs and assessed the information gathered
• believed it reasonable to recommend the financial product based on the client’s relevant circumstances, and
• taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances.

Section 961G of the Act states that the provider must only provide advice to the client if it would be reasonable to conclude that the advice is appropriate to the client had the best interest duty had been met. It follows that if the best interest duty has not been satisfied, the advice will not meet the appropriateness requirement.

Consequently, ACME Advice was required to pay the complainant $56,861 into Adele’s SMSF.

In its provision of advice to Adele, ACME Advice potentially breached the following standards in the Code of Ethics.

Case study three: Insider trading for personal and clients’ benefit

Lachlan was an investment adviser at a broking firm that provided advice and trading for licensees and their advisers. Most of the clients were in managed discretionary accounts, which meant Lachlan could act on their behalf without having to seek approval for each trade.  The firm also undertook some corporate advisory work for small and mid-cap listed companies.

One such company was AMCE Industries. When the company listed, Lachlan recommended to the advisers he worked with that their clients participate in the IPO. The business had a unique product and a significant pipeline of sales. The IPO was successful and AMCE Industries enjoyed several good years of profitability and share price growth.

In the fourth year of AMCE Industries being listed, Lachlan became aware of a flaw in the design of one of the company’s major products. It was to lead to a major recall and because the company did not know how to rectify the fault, was likely to have an ongoing negative impact on its share price.

Lachlan quickly sold positions in AMCE Industries for the MDA clients. Lachlan also owned AMCE Industries in his own portfolio, a position he also divested. The following day, AMCE Industries announced the issue to the ASX, and the share price fell by 75%.

After an investigation by ASIC, it was found that Lachlan had breached Section 1043A of the Corporations Act 2001. Because the clients did not need to provide authorisation for the trades and were unaware of the situation, there was no action taken against those MDA clients. At the time of the offence, a breach of s1043A carried a maximum penalty of 15 years imprisonment.

Lachlan sought to benefit himself and his clients. His actions would have likely breached the following standards in the Code of Ethics:

Case study four: Inappropriate advice re listed securities

Brenda and George brought a complaint in their personal capacities, as trustees for their self-managed superannuation fund, and as directors of the corporate trustee of their family trust. The complaint was with respect to advice received from ACME Super Solutions.

In May 2017, ACME Super Solutions recommended that Brenda and George establish an SMSF, roll their superannuation into it, and authorise ACME Super Solutions to manage the SMSF investments and Family Trust portfolio on a discretionary basis.

The complaint was about whether the advice and portfolio management were appropriate in May 2017 and whether it remained appropriate until the relationship ended in March 2023.

AFCA found that the SMSF was significantly more expensive than Brenda and George’s existing superannuation funds and had a higher administrative burden; there were no benefits to the couple that outweighed those costs.

Secondly, ACME Super Solutions the financial firm invested the SMSF and Family Trust in riskier listed investments those suggested by their ‘balanced’ risk profile.

Finally, it was also determined that ACME Super Solutions did not ensure that Brenda and George properly understood the advice, or the recommended investments, the potential risks of the investments, or the costs associated with establishing the SMSF.

AFCA determined that ACME Super Solutions did not provide appropriate advice and therefore failed in its duty to act in the complainants’ best interests. It is therefore fair in all the circumstances the financial firm compensate the complainants for the losses caused by its inappropriate advice: the inappropriate advice caused superannuation losses of $334,582 and it caused the Family Trust a loss of $9,782. ACME Super Solutions was required to repay the complainants these amounts.

In its provision of inappropriate advice to Brenda and George, ACME Super Solutions potentially breached the following standards in the Code of Ethics.

The ethical dimension of financial advice centres on providing well-reasoned recommendations that serve the client’s best interests and support their financial and lifestyle goals. It also involves ensuring clients clearly understand all advice and investment recommendations, including those related to listed and unlisted securities.

Upholding ethical standards, demonstrating integrity and building trust are essential to fostering consumer confidence in advisers and the broader financial services industry. Adherence to the Adviser Code of Ethics – and for SIAA members, the Code of Ethical Conduct –is key to strengthening the industry’s reputation.

 

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CPD Quiz

The following CPD quiz is accredited by the FAAA at 0.75 hour.

Legislated CPD Area: Professionalism & Ethics (0.75 hrs)

ASIC Knowledge Requirements: Ethics (0.75 hrs)

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Notes:
[1] ASX Investment Products Report, 31 March 2022
[2] ASX Historical Data, 31 March 2025
[3] Stockbrokers and Financial Advisers Association, Code of Ethical Conduct, February 2023
[4] https://asic.gov.au/about-asic/asic-investigations-and-enforcement/asic-enforcement-priorities/