Sarah Abood

The Financial Planning Association of Australia (FPA) has welcomed the appointment of the new Labor Government led by Prime Minister Anthony Albanese, and says it is looking forward to effective collaboration on the pressing issues affecting the financial planning profession after the full ministry is sworn in next Wednesday.

Ms Abood also thanked Senator Jane Hume for her service as Minister for Superannuation, Financial Services and the Digital Economy with the Coalition government.

Whilst the counting of votes cast at the 2022 Federal Election continues, the crossbench in both the House of Representatives and the Senate appears to be taking on historical proportions. The FPA also commits to working collaboratively with all those successful at this election to shape outcomes in the best interests of our profession.

With the profession left in limbo over the election campaign period as we waited for certainty on education standards, FPA chief executive Sarah Abood said the FPA expected actions on this issue to be the first order of business for the incoming Minister for Financial Services.

“Congratulations to Prime Minister Anthony Albanese and his Government on their appointment and we look forward to working with the new Minister for Financial Services on matters of vital importance to the financial planning profession,” Ms Abood said.

“We are expecting the new Government to quickly deliver on its election commitment to provide much-needed certainty to the profession on education standards, including providing for a framework to better recognise relevant experience.

“We have already had good engagement with Stephen Jones on this and other issues in the past and we look forward to working further with the Albanese Labor government,” said Ms Abood.

“We will continue to work with all stakeholders on policies and initiatives that contribute to affordable financial advice for all Australians and a sustainable financial planning profession for the future.”

The FPA has prioritised a number of issues for the 47th Australian Parliament to address, including the Australian Securities and Investments Commission’s (ASIC) industry funding model and education standards, the creation of a Compensation Scheme of Last Resort (CSLR), better regulation of ‘finfluencers’, and tax deductions for the provision of financial advice.

The FPA has cited the creation of a CSLR as a high priority, saying its design and implementation should ensure that consumers are covered for the full range of matters considered by the Australian Financial Complaints Authority (AFCA) including managed investment schemes, and that the Government bears the costs of the establishment and any legacy claims relating to the scheme.

The FPA says the administration costs of a CSLR should be closely monitored to ensure that cost recovery from industry primarily compensates consumers rather than covering bureaucracy and administration.

The FPA is also calling for sensible measures to improve the affordability and accessibility of financial advice, such as reducing regulatory complexity and duplication as well as providing Australians the ability to claim a tax deduction for the provision of financial advice, regardless of the stage in the advice process

In relation to Treasury’s review of ASIC’s industry funding model, the FPA says it should report its findings before the freeze on ASIC levies charged for personal advice to retail clients expires.

In addition, the FPA has called on regulators to take more action on ‘finfluencers’ to ensure that the law is equally applied to those offering personal financial advice, no matter what the platform.

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John Maroney

SMSF Association CEO John Maroney and Association Chair Scott Hay-Bartlem warmly welcomed a strong delegation of over 950 multidisciplinary SMSF professionals from across the country at the opening of the 18th Annual National Conference this morning, demonstrating the appetite for collaboration and education in the SMSF sector.

The National Conference presents two and a half days of premium technical education starting this morning with a stimulating Thought Leadership Breakfast, presented by Act2 Solutions, focussed on technology in the SMSF sector, and a bustling SMSF exhibition showcasing the latest products and services in the sector.

In response to the strong turnout this year, Mr Maroney said that, after two years of restricted events, there is a clear appetite for SMSF professionals to get together and update themselves on how the SMSF sector has evolved.

“The energy at the National Conference has already been incredible, you can feel the appetite for in-person events and the excitement it brings following the relaxation of travel and event restrictions,” he said.

“We’re diving right into the educational program this morning with a focus on movements in the regulatory landscape with Deputy CEO / Director of Policy & Education, Peter Burgess. This year’s technical program will once again kick off with this high-level, rapid-fire SMSF legislation stocktake session.”

“The SMSF sector has continued to grow strongly, and, from a legislation perspective, it’s been one of the busiest years on record. The scope and impact of these changes on client strategies is considerable, such as the new SuperStream rules, the introduction of Director Identification Numbers, and some of the regulatory changes to residency rules and the work test.”

SMSF Association Director, Bryan Ashenden, will also explore significant changes in the regulatory landscape for the provision of financial advice and related services that are currently under examination by the Australian Law Reform Commission and Treasury’s Quality Advice Review post the Royal Commission.

Mr Hay-Bartlem said that the conference has drawn in professionals from all over the country, acting as an example of how major events can be reintroduced slowly, as Australia returns to business as usual.

“I am thrilled to be the Association’s new Chair and to welcome so many of our members to Adelaide. What we have delivered is a program focused on bringing our members up to speed on technical and regulatory developments in the SMSF space, delivered by some of the very best in the sector,” said Mr Hay-Bartlem.

“The SMSF sector depends heavily on the advice from SMSF specialists and we are here to support you every step of the way,” he said.

Both Senator Jane Hume, Minister for Superannuation, Financial Services, and the Digital Economy and Dr Jim Chalmers, Shadow Treasurer, provided video addresses to the conference, a sign of the growing importance of SMSFs as a retirement vehicle and policymaker interest in supporting the sector.

“I’m pleased to be speaking with you at the SMSF Association National Conference, an event that continues to increase in size and stature as more Aussies take their future into their own hands. The SMSF Sector is a great strength of the Australian retirement system and it’s only getting better,” Senator Jane Hume said.

“One quarter of all super assets are now in self-managed funds and the traditional demographics of SMSFs are changing – more women and younger people.”

“With the changing landscape of the sector, regulatory settings need to be targeted and effective without the burden of red tape. The Morrison Government is a great ally of the SMSF sector,” she said.

Dr Chalmers commented: “I’m really proud of my long association with you all the way back to when Andrea Slattery was running the organisation and through more recent consultations and conversations. I want to thank you for your advocacy, availability and for the opportunity to confer with you from time to time.”

“I know that Stephen Jones and the rest of the economics team and indeed the whole Shadow Cabinet and Parliamentary Party are grateful for the work that you do,” he added.

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Peter Burgess

The vexing issue of red tape and how to cut it will come under the microscope at the 2022 SMSF Association National Conference being held at the Adelaide Convention Centre from April 20-22.

SMSF Association Deputy CEO/ Director of Policy & Education Peter Burgess says reducing complexity is such a critical issue for the SMSF sector that the conference organisers decided to add another concurrent session to the program to allow an experienced and highly credentialed panel of experts to dissect it from every angle.

The panellists are Marisa Broome (Chair, FPA), Simon Grant (Group Executive Advocacy, Professional Standing and International Development, CAANZ), Phil Anderson (CEO, AFA), and Vicki Stylianou (Group Executive Advocacy and Policy, Institute of Public Accountants). SMSF Association CEO John Maroney will moderate the session.

Burgess says: “With the quality of financial advice review set to begin, it’s timely that the National Conference discusses what needs to be done to cut complexity and achieve meaningful reform.

“The panel, comprising the accounting and financial advice professions, will examine the opportunities that exist to streamline and simplify regulatory compliance obligations in the context of what SMSF consumers really want and need that they aren’t receiving now.

“They will also discuss what a restructured and enhanced regulatory framework for accountants providing SMSF advice, and financial advisers providing tax financial advice, could and should look like.”

This session is another highlight of the National Conference that will see five workshop topics, a Thought Leadership Breakfast, concurrent and plenary sessions, offer up to 47 CPD hours, as well as hear addresses from the Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, and the Shadow Assistant Treasurer and Minister for Financial Services and Superannuation, Stephen Jones.

Burgess says this National Conference, which will allow Association members to network and socialise in person for the first time in more than two years, is promising to be an event to remember.

“The sector is enjoying a mini boom. Member numbers and assets are both on growth paths, encouraged by the many positive changes we are seeing in our industry. Over the two-and-half days of the National Conference, delegates will hear about those changes and others that are in the pipeline.”

Register for the event.

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Phil Osborne

Calls for a change to “target a principles-based regulation framework” put forward by Senator Jane Hume should be considered carefully and not be a knee-jerk reaction for popular support, according to Synchron’s General Manager – Compliance, Phil Osborne.

“While principles-based regulation is the ideal destination for how we should be allowed to operate as an industry, we should regard this as a destination that will be arrived at after a bit more of a journey,” he said.

“We need to think of this in terms of the application – whose principles will be applied? Will we be allowing advisers to use their professional judgement and be guided by ethical standards, as has been promoted since the introduction of the Code of Ethics? If so, what happens when the regulator disagrees with the advice provided? Do we then have to discount the principles under which advice was actually given?”

Mr Osborne also believes an important, often overlooked consideration is the application of the principles of the consumer.

“How is a nuisance complaint to be treated? Under current requirements, the Ombudsman will always allow the client to decide whether to continue with the complaints process, regardless of whether there is any merit in their case,” he said. “With no disincentive for the client, the advice community is subject to the danger of moral risk under a principles-based system.”

Though many look at the ‘safe harbour’ steps of the client Best Interests Duty as a checklist to be completed, Mr Osborne sees these as guidelines to support an advice business.

“The concern is that should these steps be removed, what will then be in place for an adviser to rely on to demonstrate they have acted in an appropriate manner when dealing with the client?” he said. “Let’s not forget that before the ‘Best Interests Duty’ legislation, the requirement was to have a reasonable basis for recommendation. To remove the safe harbour steps goes back to an argument as to what is reasonable or not and removes an objective measure that provides an adviser with some form of defence, as well as a benchmark by which they can be held accountable.”

As for the domination of checklists causing compliance complication and micromanagement, this is a concern with which Mr Osborne wholeheartedly agrees.

“Over the years, checklists that were simple and performed a valuable function have been bastardised – continually being added to and expanded to the point where we’re now seeing checklists for the checklists.

“Adding something to a process doesn’t necessarily mean it’s an improvement. It’s the mentality of compliance departments to add extra things to supposedly improve compliance that now sees the industry overwhelmed by monumental amounts of documentation. Checklists, lengthy advice documents, onerous fact-finding demands have all had the effect of creating a bureaucracy that doesn’t support our actual purpose – to provide a service to  clients.”

What also needs to be considered, according to Mr Osborne, is the way in which the industry has fumbled its opportunity to apply principles-based regulation via the Code of Ethics introduced in January 2020.

“The fact that it took the industry two years to understand that a concern for conflict of interest didn’t actually mean referral payments were banned under Standard 3 doesn’t bode well for how regulation on a principles-basis would actually be applied,” he said.

While he supports the evolution of the industry over time to a principles-based regulatory regime, he believes the industry right now ultimately needs to step back and assess exactly what the legislation that is in place actually requires.

“The legislation we have now is not that prescriptive or onerous. With the ability to interpret what is there it already provides us with what many are seeking from principles-based regulation. Let’s get used to working with the Code of Ethics in conjunction with the spirit of the current legislation before we go changing anything.”

Mr Osborne said the current situation reminds him of an Oscar Wilde quote. “When the Gods wish to punish us, they answer our prayers. In other words, let’s be careful what we wish for – let’s not throw away the objectivity and protection advisers enjoy with the safe harbour steps until the industry has evolved to the point they’re no longer required.”

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David Locke

The Australian Financial Complaints Authority (AFCA) welcomed the release yesterday of the report of the Independent Review into its financial dispute resolution service. AFCA agrees in principle with the report’s 14 recommendations.

“Overall, this is a very positive report card, particularly for an organisation barely three years old,” Chief Ombudsman and Chief Executive Officer David Locke said.

“We welcome the report’s endorsement that we are delivering a fair, independent, efficient and effective complaints resolution service. The comments on our performance, including from the former Federal Court judge brought in as an independent expert, are highly encouraging.”

“We were also pleased to read the Government’s response to the findings of the Review, which supports the recommendations and notes that AFCA is performing well and providing an effective dispute resolution service for consumers and small businesses.”

The report says, “AFCA is performing well in a difficult operating environment and a changing regulatory landscape”. It reaffirms AFCA’s impartiality and its fairness jurisdiction, acknowledging that this approach underpins the body’s “critical” role as an efficient alternative to a tribunal or court for consumers, small businesses and financial firms. The report says it “did not find evidence to support a view that there are systemic issues with the independence of AFCA’s operations”.

The Review, conducted by Federal Treasury, was a requirement of the legislation that established AFCA. The report was delivered to the Minister for Superannuation, Financial Services and the Digital Economy, and Minister for Women’s Economic Security, Senator Jane Hume, who released it today.

Mr. Locke said AFCA was committed to continuously improving its complaints resolution scheme for all participants and the report would aid this work.

“We know there are areas where we can improve as we move out of our establishment phase, and some of these have been identified in the Review,” he said.

“We have a number of important projects under way, including investments in technology and process improvement, along with a review that is looking at ways to modernise our interim funding arrangements. We will use the insights and analysis from the Review to further inform this work.”

In its first two years, AFCA received more than 152,000 complaints, the report notes. The average time to resolve those complaints was 74 days, which the report says compares favourably with the performance of its UK counterpart and AFCA’s predecessor schemes.

The AFCA Board, which has equal representation of consumers and financial firm representatives and an independent Chair, will examine the report in detail.

Mr. Locke said that, as always, AFCA would consider any potential impacts on the costs for industry and the timely resolution of complaints when implementing the recommendations.

“AFCA will continue to engage with government, regulators, industry and consumers to ensure we are doing all we can to deliver fair outcomes in the most cost-effective, efficient and transparent way for all participants,” he said.

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Jane Hume

In what will be his first address to the financial advice community since his appointment in June 2021, ASIC Chair, Joseph Longo, will appear on the opening day of the Association of Financial Advisers (AFA)’s upcoming EVOLVE Conference (the AFA Conference).

Mr Longo joins a distinguished line-up of expert speakers, including Senator Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy, who will deliver the opening keynote, and Shadow Assistant Treasurer and Shadow Minister for Financial Services and Superannuation, Stephen Jones, MP. Former Lego executive, Conny Kalcher, from Zurich’s UK headquarters, will discuss her customer journey from Lego to Insurance, and Australia’s former Deputy Chief Medical Officer and COVID-19 expert, Dr Nick Coatsworth is the closing keynote speaker.

AFA’s new CEO, Helen Morgan-Banda, said, “I am looking forward to welcoming AFA members to our EVOLVE conference, as we celebrate 75 years as an association. I want to join with financial advisers and use this conference to start charting a way forward after a period of unprecedented change.”

Hosted by Master of Ceremonies, Nigel Collins, the AFA Conference will run from 21-22 September 2021. Delegates will have virtual access to 35 industry expert presentations which will be broadcast live across the nation and subsequently made available to delegates on demand for up to four months. The complete AFA Conference program offers up to 30 hours of CPD and delegates will be able to immediately download their CPD certificates after viewing an on-demand session via a new CPD Hub. Those joining the conference will also be able to take part in interactive sessions and visit virtual exhibitor showrooms.

Olivia Sarah-Le Lacheur, AFA Conference Chair, said, “Once again, the AFA Conference program has been expertly designed to help delegates increase their technical knowledge, while also giving them insights into how to grow their businesses. It provides an outstanding opportunity for advisers to access information that will help them to take their practices to the next level.”

The AFA Conference will also host a special 75th birthday celebration.

Other sessions include a comprehensive regulatory update from AFA General Manager, Policy and Professionalism, Phil Anderson; sessions on investment, pricing, and industry trends; updates from the AFA Foundation and Pro Bono Financial Advice Network; insights from industry heads of business, and seven panel discussions covering key issues across the profession.

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Michael Nowak

The Association of Financial Advisers (AFA)’s advocacy on behalf of its members has helped win a major concession from the Government, with the proposed trebling of the ASIC Funding Levy (the ASIC Levy) on hold, AFA National President Michael Nowak announced today.

“The proposed increase would have seen the ASIC Funding Levy per financial adviser increase by 200% in just over two years, from $1,142 in 2018/19 to an estimated $3,450 in 2020/21,” he said.

Mr Nowak said that in response to extreme concerns raised by the AFA and the advice sector about the impact of the increases, the Government has decided to reduce the ASIC Levy back to the 2018/19 level of $1,142 per adviser for the next two years, in the face of further Hayne Royal Commission recommendations being implemented.

During this time the Government has announced it will also be undertaking a review of the ASIC industry funding model to ensure that it remains fit-for-purpose.

“This is a much-needed move in the right direction, and I want to thank the Treasurer The Hon. Josh Frydenberg, MP and the Minister for Superannuation, Financial Services and the Digital Economy the Hon. Jane Hume and the Government for finally listening to the AFA and the advice sector,” Mr Nowak said.

“The financial advisers the AFA represents are dealing with a requirement to sit a compulsory FASEA Exam and meet other education standards to keep their livelihood, on top of an overwhelming volume of other regulatory reform, huge sectoral restructuring and the impact of the COVID-19 crisis.

“It was unjustifiable to expect advisers already dealing with this tsunami of reforms to have to find extra cash to fund a trebling of the levy over two years to support an industry funding model requiring small businesses to pick up the cost of litigation against large institutions.

“This is a significant first step in starting to address the practical impact of the reforms on the ability of financial advisers to offer everyday Australians sound financial advice to give them financial security and independence.

“There is much more to be done to ensure that post the reforms financial advice can still be delivered in an efficient and cost-effective manner, thereby ensuring that it is available to the majority of Australians.

“The ASIC Funding Levy has been the subject of intense discussion at Parliamentary hearings throughout the course of 2021, and we thank all those politicians who have picked up this cause and lobbied on behalf of the financial advice profession.”

At the Parliamentary Joint Committee on Corporations and Financial Services hearing with ASIC on Friday 27 August 2021, the ASIC Funding Levy was the subject of discussion for the first 50 minutes, with probing questions from a number of the committee members.  The AFA thanks Andrew Wallace (LNP Qld), Bert van Manen (LNP Qld), Senator Deborah O’Neill (ALP NSW) and Steve Georganas (ALP SA) for their passionate pursuit of this matter.

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Jane Hume

As part of a shared commitment to unifying professional standards and further enhancing industry trust and confidence within the community, Australia’s life insurance industry has announced the development of an industry-wide Professional Standards Framework.

Jointly developed and committed to by Australia’s leading life insurers, the framework formalises standards for professional excellence by implementing a consistent ‘Foundation’ Requirement for all Life Insurance claims and underwriting professionals, consisting of four Certificate IV competencies including ethics; sustainability; products and services; and law and regulation.

This important milestone was reached in a collaboration between insurers AIA Australia, AMP Life (Part of the Resolution Life Group), BT Life Insurance, ClearView, MLC Life Insurance, TAL and Zurich, who collectively comprise 95% of the gross written premium in the retail life industry, with support from ANZIIF.

Those life insurers have made a further shared commitment to achieving a Certificate IV level for all Claims professionals by December 2023, and all Underwriting professionals by December 2024.

Senator Jane Hume, Minister for Superannuation, Financial Services and the Digital Economy, today welcomed the industry’s commitment to the implementation of professional standards at the FSC Life Summit.

“I applaud the Australian and New Zealand Institute of Insurance and Finance and industry for their hard work putting together these standards and welcome industry taking a proactive approach to create codes and standards enhancing consumer outcomes,” Minister Hume said.

Megan Beer, CEO Australasia, Resolution Life, said the industry participants were extremely proud to introduce the first ever Professional Standards Framework for the life sector.

“The industry’s commitment to a minimum professional standard in the life insurance sector will enhance the level of professionalism across every level, and consequently increase consumer trust, community satisfaction and confidence knowing that the required services are provided to the highest professional standard,” Ms Beer said.

Brett Clark, TAL Group CEO & Managing Director, said: “A Professional Standards Framework will enhance existing skills and capabilities in the industry, ensuring we set a consistent industry minimum standard of skills and competencies for key parts of the workforce that serve our customers. This Professional Standards Framework sits alongside the industry commitments set out in the Life Insurance Code of Practice, which together, put in place important long term commitments by the life insurance industry to delivering for our customers and the community.”

“We are an industry with a workforce which has a wealth of experience.  Of the survey participants in the demographic research conducted by ANZIIF, over two thirds (66%) have worked in the life insurance industry for over 5 years and 46% have more than 10 years’ life insurance industry experience. This is an asset for any industry, as it brings a breadth and depth of skills that enables us to better serve the needs of our customers,” said Justin Delaney, Zurich Chief Executive Officer, Life & Investments Australia.

Prue Willsford, ANZIIF Chief Executive Officer said the launch of the Professional Standards Framework is a significant and positive step for the life insurance sector and the development of its people.

“Competency Frameworks have been developed for Claims, Underwriting, Product and Distribution functions and will provide life insurance companies with a measurement tool for their own existing internal training, while professional development for employees will provide a roadmap for long-term consistency across the industry,” Ms Willsford said.

ANZIIF will continue to support the industry through its next phase of implementing the Professional Standards Framework. Key stakeholders in the development of the Professional Standards included the Financial Services Council and ALUCA.

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John Maroney

Industry experts will dissect the Retirement Income Review (RIR) report that was handed down late last year at the 2021 SMSF Association National Conference being held virtually on 16 and 18 February.

SMSF Association CEO John Maroney says: “We are extremely lucky to have one of the RIR panel members, Dr Deborah Ralston, address the issues raised by this important report, as well as having input from the Association’s Deputy CEO/Director of Policy & Education, Peter Burgess, Vanguard’s Head of Corporate Affairs, Robin Bowerman, and Challenger’s Chairman of Retirement Income, Jeremy Cooper.

“All four have a wealth of knowledge and experience about Australia’s retirement income system. It will be invaluable for conference delegates to hear insights into their thinking on a report that will have an ongoing influence of Australia’s retirement income system.

Maroney says other highlights from the conference will be special addresses by the Minister for Superannuation, Financial Services and the Digital Economy, Senator Jane Hume, the Shadow Minister for Financial Services and Superannuation, Stephen Jones, ATO Commissioner Chris Jordan and Danielle Press from ASIC.

“We are fortunate to have both the Minister and Shadow Minister for our sector take time out of their busy schedules to address the conference. As the country emerges from the COVID-19 pandemic, their views of how they plan to tackle the various issues confronting our sector will make for interesting listening.

“Other highlights will be Peter Burgess giving the latest legislative and regulation updates in his highly anticipated plenary session, with other sessions covering issues such as auditor independence, positioning an SMSF practice for growth, identifying unmet advice needs, divorce and SMSF disputes, and COVID-19 relief measures.

“As always, it will be a comprehensive technical program that is designed by SMSF practitioners for SMSF practitioners.”

This year’s virtual conference does have the benefit of not requiring travel or accommodation, as well as the luxury of people being able to tune in from the comfort of the home or office. And the entire technical program contains more than 30 CPD hours.

There will be access to the online platform until Friday 9 April 2021 for all registered delegates.

Registrations, full program and speaker information.

For more details about the Retirement Income Review Session.

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The provision of inadequate financial advice can lead to breaches of the Code of Ethics.

On 1 January 2020, FASEA’s Code of Ethics became enforceable by law, requiring advisers to comply with its 12 detailed standards. By the end of 2020, it was announced that FASEA (but not its Code of Ethics) would be disbanded. This article, proudly sponsored by GSFM, examines the importance of upholding these standards and how the provision of inadequate financial advice can lead to breaches.

While FASEA and the standards that comprise its Code of Ethics had been viewed in some quarters as contentious, and have been subject to much discussion, the government’s announcement that FASEA would be disbanded came as a surprise to many.

In a joint statement released in December 2020, Treasurer Josh Frydenberg and Minister for Superannuation, Financial Services and the Digital Economy Jane Hume announced some changes to the financial services landscape in response to recommendations from the 2018 Hayne Royal Commission.

FASEA’s role is to be absorbed by two entities. ASIC’s existing Financial Services and Credit Panel (FSCP) will be expanded to consolidate FASEA’s code monitoring with ASIC’s other monitoring functions, a move designed to help reduce the regulatory burden for financial advisers. Some other elements of FASEA’s role, including administration of the adviser examination, will also be incorporated into FSCP’s expanded mandate.

In terms of the Code of Ethics and its standards, the government will move FASEA’s standard-making functions to Treasury, with the standards to be set by legislative instrument. There has been no indication that the current twelve standards that comprise FASEA’s Code of Ethics will change once this transition is complete.

While no exact date has been provided for these changes, FASEA is funded until 1 July 2021; accordingly, many across the industry expect the transition to be complete on or around this date.

This time last year, when COVID-19 was a virus afflicting China and not yet seen as a significant threat to the world, Australia’s financial services industry was watching the announcements roll out of Treasury as recommendations from the Hayne Royal Commission were issued on a regular basis. These announcements ground to a halt once the government moved into crisis mitigation mode to shield, as far as possible, Australia’s economy from the havoc being wrought by the global pandemic.

Despite this, and the changes businesses had to make to continue operating in remotely during (and after) periods of lockdown, licensees, advisers and advisory practices were grappling with the introduction of FASEA’s Code of Ethics, which became enforceable by law on 1 January 2020. Whether operating from a home office or high rise, advisers (and staff) had to continue meeting the code’s high standards and licensees had to continue to ensure authorised representatives complied with the code. The big change in the future will be that monitoring and enforcement activities will transition to ASIC’s FSCP, rather than falling on the licensee’s shoulders.

Where advisers (or licensees) fail to meet the Code’s standards, ASIC will take enforcement action. It’s important to remember that while FASEA’s Code of Ethics is designed to raise standards of professional and ethical behaviour, it does not replace the laws that govern the provision of financial advice.

Responsibility for applying the tenets of the Code falls on individual advisers continues in 2021; each adviser must be able to explain their interpretation and application of the Code in all dealings with clients.

Underpinned by values

FASEA’s Code of Ethics imposes ethical duties on financial advisers and has been designed to encourage higher standards of behaviour and professionalism in the financial services industry. This is not likely to change when responsibility for the Code of Ethics transitions to Treasury.

FASEA describes the purpose of its Code as follows:

The Code of Ethics imposes ethical duties that go above the requirements in the law. It is designed to encourage higher standards of behaviour and professionalism in the financial services industry.

The Code of Ethics addresses five core values:

1. Trustworthiness
2. Competence
3. Honesty
4. Fairness
5. Diligence

The code requires that financial advisers must act at all times, in all cases, in a manner that is demonstrably consistent with FASEA’s twelve ethical standards, summarised in figure one.

FASEA’s code of conduct comes with guidance. Not all scenarios and client situations will necessarily fit neatly into a standard, nor is the standard a ‘tick and flick’ approach to compliance. Professional judgement and analysis are required and, where an adviser isn’t sure about the right course of action, they need to discuss this with their licensee or their advisory board. After all, as stated in the guidance:

“As with every profession, there is allowance for differences of professional opinion on how the ethical rules of the profession should apply in a particular case.”

The Australian Financial Complaints Authority (AFCA)

In its first two years of operation, AFCA received more than 153,000 complaints and resolved approximately 135,000 disputes; from this, more than $474.5 million was awarded in compensation and refunds to Australian consumers and small businesses.

Investments and advice saw an increase of 22% in the average number of complaints received each month during the 2019–20 financial year, a total of 4,615 complaints. During this period, complaints about investment and advice comprised 6% of the total complaints received by AFCA. Complaints about superannuation were slightly higher at 9% and life insurance represented just over 2% of total complaints. Once again, banking and credit products and services dominated complaints^[1].

Of those 4,615 investments and advice complaints, 1,042 complaints related to financial planners or advisers, which represents 23% of all investments and advice complaints. In total, more than $53.4 million in compensation and refunds was awarded with respect to complaints about inadequate or inappropriate financial advice.

Each of the issues raised in figure two are a breach of one or more of FASEA’s ethical standards. While the specifics of each complaint may result in the breach of different standards, in general terms, it’s likely that those advisers who have been the subject of these complaint areas will have breached common standards as follows.

Misleading product/service information

Complaints in this category have increased year on year. Advisers subject to complaint about providing misleading product or service information are likely to have breached the following standards:

Inappropriate advice

Advisers subject to complaints about providing inappropriate advice will have likely breached the following standards:

Failure to follow instructions/agreement

Where advisers have failed to follow instructions or acted in contravention to agreements, they will have likely breached the following standards:

Failure to act in a client’s best interests

Acting in a client’s best interests is a tenet that underpins FASEA’s Code of Ethics. Where advisers are found to have failed to act in a client’s best interests, they will have likely breached a number of ethical standards, including:

Service quality

Service quality is a somewhat subjective form of complaint and could arise from so many different facets of advice. It could potentially breach each standard, depending on the nature of the complaint.

For example, it may have been a failure to disclose a conflict of interest (standard three) or to provide clear and simple advice (standard five). Maybe the adviser didn’t clearly explain fees and charges (standard 7) or maintain complete and accurate records of advice (standard 8).

Case studies

The following case studies are based on real events; however, the names of people and organisations have been changed, and some details altered. The case studies have been drawn from the Australian Financial Complaints Authority (AFCA) or its predecessor organisation. For each, potential breaches of FASEA’s Code of Ethics are identified.

Case study one: Misleading conduct and non-disclosure

Michael was a long-term client and personal friend of a director of ABC Financial Services, which was the responsible entity of a mortgage fund. Michael was a long-term investor in the fund.

The fund allowed investors to invest in mortgages secured over real property and earn a fixed rate of return over a fixed investment term. It was intended that the fund would apply maximum loan-to-value ratios to the borrowers, and that those maximums would not exceed a fixed percentage of the secured property’s independent valuation. Michael invested $162,500 through his self-managed superannuation fund (SMSF).

The corporate borrower defaulted on the mortgage and the property was subsequently sold at a loss, resulting in only a partial return to the first mortgagee and no return to the second mortgagees, including Michael and his SMSF.

In his complaint, Michael told AFCA the adviser misled him about the creditworthiness of the borrower and the existence of a third mortgage over the property. He said that if he had known about these factors he would not have invested and would not have suffered a loss.

In its response to the complainant, ABC Financial Services said it only provided general advice and disclosed all required information. It also said Michael’s investment history implied he would have invested anyway.

AFCA investigated the information that should have been disclosed and examined whether the adviser misled Michael by omission, whether there was conflict of interest, and what loss was caused by the misrepresentation and non-disclosure.

During the dispute resolution process, AFCA found there had been issues with late payments and the existence of a third mortgage should have been disclosed to Michael in the relevant Product Disclosure Statement. By not disclosing the required information, the adviser had misled the complainant by omission.

However, there was insufficient evidence of any mismanaged conflict of interest for the adviser or ABC Financial Services. Further, AFCA found that Michael would have continued to invest in similar sub-schemes, so therefore decided the complainant had contributed to his losses to such an extent that a 40% reduction in the compensation award was appropriate. As a result, ABC Financial Services was required to:

1. Pay Michael’s SMSF an amount of $97,500.00, plus interest at the rate of 15.95% calculated daily for the period of the investment.
2. Pay additional compound interest at the rate of 1.25% on the total amount from the termination date of the investment to the date of payment.

Breaches of FASEA’s code of ethics

By not disclosing required information and misleading the client by omission, the adviser potentially breached the following standards in the Code of Ethics:

Case study two

Husband and wife Rob and Lisa sought investment advice in their capacity as corporate trustees of their SMSF. This advice was provided by Julia at JJ Financial Planning.

One of the recommended investments was an agribusiness investment, which was subsequently wound up. This resulted in a substantial loss to the SMSF. Rob and Lisa claim they were not advised of the risks associated with this investment.

Julia disputed this claim and said she was supported by the fact that the Statement of Advice she provided – and the client signed – disclosed the attributes of the Project and stated that it was considered “speculative” and provided no guarantee of returns.

However, AFCA’s case manager was not satisfied that Rob and Lisa had sufficient opportunity to read the SOA, because it was signed by them at the same meeting where it was provided to them.

The licensee provided a copy of the adviser’s file notes of the meeting at which this investment was discussed. Those notes do not record that there was any discussion about the risks of investment. As such, AFCA did not believe the file note supported Julia’s statement that she verbally disclosed the risks and told the complainants that the agribusiness project was speculative.

AFCA found in favour of the complainants and determined that:

1. The licensee makes good the losses plus interest calculated at the rate of 5% pa compounded annually from date of the determination to the date of payment, and
2. The Applicants assign to the licensee all their rights and interests in respect of the Project within 14 days of receiving a written request and payment of any transfer or assignment fee from the licensee. Such written request may only be sent by the licensee within 14 days of payment of the amount detailed in the first point.

Breaches of FASEA’s code of ethics

By not disclosing information about the significant risks associated with the investment, particularly as it was regarded as ‘speculative’, the adviser potentially breached the following standards in the Code of Ethics:

Case study three

The complainants, Susan and Colin, were 69 and 72 at the time of seeing adviser Edward, an authorised representative of the financial firm ACME Financial Planning.

Edward recommended that Susan and Colin invest in a Capital Protected Fund (the G Fund). At the time Colin had $337,237 and Susan had $490,820 to invest.

Susan and Colin were classified as Assertive – Balanced investors, which resulted in a recommended asset allocation of 30% defensive assets and 70% growth assets. The complainants say they understood from Edward that the G Fund was capital protected, but that they would get the highest return for the year locked in.

They later found out that they would only get the return available at the anniversary of the product. They claimed had they known this, they would not have invested. Susan and Colin also claimed that Edward did not advise them of the CGT payable when they rolled their money out of the G Fund and overcharged them fees.

AFCA determined that the adviser failed to adequately explain how the product worked. Had the complainants known the level of uncertainty with the fund they would not have invested. The determination also noted that Edward failed the best interest duty by not providing appropriate risk profiling and advice to his clients. Finally, AFCA accepted that the complainants would have been conservatively invested if appropriately advised; this resulted in a total loss of $91,958.34.

This determination was found in favour of the complainants. Total compensation equating to the couple’s loss, plus 1.5% interest per annum compounding annually from determination to the date of payment, was paid.

Breaches of FASEA’s code of ethics

By inadequately describing how the product worked and failing to provide appropriate risk profiling and advice to his clients, Edward potentially breached the following standards in the Code of Ethics:

For the financial advice industry to grow and thrive in the post COVID world, it needs to reclaim trust and build professionalism. Acting ethically will, over time, build trust among Australia’s consumers and increase their confidence in seeking financial advice.

FASEA’s Code of Ethics, in whatever form it takes in the future, will continue to be an important element of journey to restore the industry’s positive reputation and re-establish the industry’s importance to the financial security of all Australians.

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[1] AFCA, Annual Review 2019-2020

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