Standard 3 – 3 years to end a bureaucratic boondoggle
Has the Financial Adviser Standards and Ethics Authority (FASEA) just signalled to the Australian financial planning industry that it has wasted three years?
With less than two months to go before it ceases to formally exist, FASEA has issued a consultation paper on the controversial Standard 3 of the adviser code of ethics which confirms that the entire issue could have been resolved in November, 2018, when Standard 3 read as follows:
“You must not advise, refer or act in any manner if you would derive inappropriate personal advantage from doing so.
Inappropriate personal advantage is a material gain that an adviser would receive in making a recommendation where an actual or perceived conflict existed.”
Three years’ later the top option listed in FASEA’s consultation paper states:
“You must only advise, refer or act where you do not have a conflict of interest or duty, being that which could reasonably be expected to induce you to act other than in the client’s best interest.”
The other options listed by FASEA in the consultation paper are:
“You must not receive any benefit (whether monetary or non-monetary), nor enter into any relationship, that could reasonably be expected to influence the advice you give or the service you provide to your client.” And,
“You must not advise, refer or act in any other manner where you have a conflict of interest or duty” which is the existing wording.
What needs to be understood is that financial advisers and other stakeholders only have until the first week of December to respond and FASEA, as it currently exists only has a few weeks, to act on the feedback before its role is subsumed into Treasury.
What is clear, however, is that FASEA or Treasury needs to come up with a Standard 3 that can be embraced by financial advisers and therefore supported by the broader industry.
The problem with the existing Standard 3 is that it appeared to reflect a unilateral approach driven by some members of the FASEA board and one which has never been accepted by the industry.
Yesterday’s announcement by FASEA has been broadly welcomed by an industry almost exhausted by three years of pleading for change, with Association of Financial Advisers (AFA) general manager, Policy and Professionalism, Phil Anderson saying that as well as fixing the wording, the authority needed to deliver appropriate guidance.
He said he personally favoured FASEA’s proposed option 1 but believed it needed to underpinned by appropriate guidance.
A senior licensee executive who was closely involved in earlier FASEA consultations around the code said that while the authority’s consultation paper was welcome it had taken far too long and the outcome would clearly, ultimately have to be delivered by those in Treasury.
“Yes, they’ve wasted three years of our time,” he said.