This post provides a summary of frequently asked questions and related answers for the FASEA Code of Ethics.

What is FASEA?

FASEA is the acronym for the Financial Adviser Standards and Ethics Authority Ltd. FASEA was established by the Australian government in April 2017 to set the education, training and ethical standards of licensed financial advisers in Australia. In June 2017, FASEA was declared as the standards body under the Corporations Act 2001. Under section 921U of this Act, FASEA is responsible for making a Code of Ethics for the purposes of section 921E.

What is the FASEA Code of Ethics?

The Code is formally known as the Financial Planners and Advisers Code of Ethics 2019 and was made by way of a legislative instrument by FASEA on 8 February 2019 – further details of the instrument can be accessed at https://www.legislation.gov.au/Details/F2019L0011. It is a principle-based Code and is intended to apply to a wide range of situations and imposes ethical duties that go above the requirements in the law. It is designed to encourage higher standards of behaviour and professionalism in the Australian financial services industry.

Why was the Code introduced?

In 2017 the Commonwealth Parliament amended the Corporations Act 2001 to raise the education, training and ethical standards of financial advisers and financial planners, promote enhanced consumer trust and confidence in financial planners and financial advisers and refocus them from providing commercial services to acting as professionals.

Who has to comply with the Code?

All ‘relevant providers’ must comply with the Code from 1 January 2020. A ‘relevant provider’ is an individual who is:

    • a financial services licensee;
    • an authorised representative, an employee or a director of a financial services licensee; or
    • an employee or director of a related body corporate of a financial services licensee;

          and is authorised to provide personal advice to retail clients, as the licensee or on behalf of the licensee, in relation to relevant financial products.

    • a provisional relevant provider i.e. a relevant provider who is undertaking work and training in the professional year.
    • a supervisor of a provisional relevant provider i.e. an individual that:
      • has supervisory responsibility for a provisional relevant provider;
      • is a relevant provider;
      • is not a provisional relevant provider; and
      • not a limited service time sharing adviser.

The ultimate responsibility for applying the tenets of the Code falls on individual advisers. Each must be ready to give an account of how they have interpreted and applied the Code in specific situations. Each adviser will need to keep appropriate records to demonstrate, if called upon, their compliance with their obligations under the Code.

When does compliance with the Code take effect?

All ‘relevant providers’ (advisers) must comply with the Code from 1 January 2020.

What role does each financial services licensee have?

Each financial services licensee has a role under the Act in monitoring and enforcing adviser compliance with the Code. They also have a role to play in seeking to structure their business operations in a manner that facilitates advisers being able to operate ethically under the Code.

What are the key elements of the FASEA Code of Ethics?

The Code comprises five (5) universal values and twelve (12) standards which are described below. 

Values 

All ‘relevant providers’ (advisers) must always act in a way that demonstrates, realises and promotes the following values:

    • Trustworthiness;
    • Competence;
    • Honesty;
    • Fairness; and
    • Diligence.

These values, which are described in more detail below, are paramount and underpin the standards. They dictate how advisers must behave and act on behalf of and with their clients, and in their dealings with consumers and the wider public. All the other provisions of the Code must be read and applied in a way that promotes the values. A good approach is to think of these universal values as the foundations and precursors to action and the standards as prescribed actions that must or must not be consistently taken. 

Standards

The standards of the Code are summarised below – further details are available from the Explanatory Statement at https://www.legislation.gov.au/Details/F2019L00117/Explanatory%20Statement/Text

Advisers should not consider each of the standards in the Code in isolation. They are intended to operate in combination to strengthen and inspire good practice. Therefore, advisers should be aware that the same conduct may breach multiple standards of the Code. 

Ethical Behaviour 
Standard 1

The adviser must act in accordance with all applicable laws, including the Code, and not try to avoid or circumvent their intent. This is a minimum ethical obligation.

Standard 2

The adviser must act with integrity and in the best interests of each of their clients.

Standard 3

The adviser must not advise, refer or act in any other manner where they have a conflict of interest or duty.

Client Care
Standard 4

The adviser may act for a client only with the client’s free, prior and informed consent. If required in the case of an existing client, the consent should be obtained as soon as practicable after the Code commences. This means that, before the adviser starts to act, they must have explained to their client, clearly and simply:

    • what services will be provided; and
    • the terms on which they will be provided; and
    • the records that will be made of the services, and the privacy and confidentiality arrangements applicable to them.
Standard 5

All advice and financial product recommendations that the adviser gives to a client must be in the best interests of the client and appropriate to the client’s individual circumstances. The adviser must be satisfied that the client understands their advice, and the benefits, costs and risks of the financial products that are recommended, and the adviser must have reasonable grounds to be satisfied. This requires of the adviser detailed engagement with, and assistance to, the client.

Standard 6

The adviser must take into account the broad effects arising from the client acting on their advice and actively consider the client’s broader, long-term interests and likely circumstances.

Quality Process
Standard 7

The client must give free, prior and informed consent to all benefits the adviser and their principal will receive in connection with acting for the client, including any fees for services that may be charged. If required in the case of an existing client, the consent should be obtained as soon as practicable after this Code commences.

Except where expressly permitted by the Corporations Act 2001, the adviser may not receive any benefits, in connection with acting for a client, that derive from a third party other than their principal. The adviser must satisfy themselves that any fees and charges that the client must pay to the adviser or their principal, and any benefits that the adviser or their principal receive, in connection with acting for the client are fair and reasonable, and represent value for money for the client.

However, this standard does not prevent a corporate financial services licensee from deriving third party benefits because one of its authorised representatives provides advice to clients. Corporate financial services licensees are not relevant providers subject to the Code.

Standard 8

The adviser must ensure that their records of clients, including former clients, are kept in a form that is complete and accurate.

Standard 9

All advice the adviser gives, and all products they recommend, to a client must be offered in good faith and with competence and be neither misleading nor deceptive. Among other things, this requires that all relevant providers act efficiently, honestly and fairly. Paragraph 912A(1)(a) of the Act requires licensees to “do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly”; this Standard ensures that a corresponding ethical duty applies to all relevant providers.

Professional Commitment
Standard 10

The adviser must develop, maintain and apply a high level of relevant knowledge and skills. For example, if the adviser specialises in a particular area, they should not provide advice outside that area unless they have the necessary skills and competencies to do so in a professional way. Meeting the continuing professional development requirements (part of the education and training standards) will assist with meeting this duty.

Standard 11

The adviser must cooperate with ASIC and monitoring bodies in any investigation of a breach or potential breach of this Code. This duty applies in addition to the offences in sections 921M and 921P of the Act

Standard 12

Individually and in cooperation with peers, the adviser must uphold and promote the ethical standards of the profession and hold each other accountable for the protection of the public interest. This standard deals with relevant providers’ professional relationships with each other, emphasising that they need to be supportive and aligned to the profession as a whole—being, and being seen to be, a profession that acts ethically and professionally.

What does the value of trustworthiness mean?

According to FASEA, acting to demonstrate, realise and promote the value of trustworthiness requires that the adviser acts in good faith in their relationships with other people. Trust is earned by good conduct. It is easily broken by unethical conduct. The adviser earns trust by being reliable in their relationships with others, and by doing what they say they’ll do.

Trust requires having the courage to do what is right, even though the adviser may suffer personal detriment by doing so. It requires that the adviser is loyal to each of their clients, and that they will keep client personal information entrusted to them private and confidential. It requires that the adviser should not subordinate their duty to their client, or their client’s lawful interests, to their own interests and any obligation they may owe to a third party, including an employer or a financial services licensee. Trust requires the adviser to act with integrity and honesty in all their professional dealings, and these values are interrelated.

Acting ethically, with trustworthiness, promotes trust by consumers in the profession of financial advisers, promoting community confidence in accessing and utilising professional financial services.

Further information about the trustworthiness value, including practical suggestions, is available at https://mynextadvice.com.au/fasea-code-of-ethics-values-trustworthiness/

What does the value of competence mean?

According to FASEA, acting to demonstrate, realise and promote the value of competence requires the adviser to have regard to the knowledge, skills and experience necessary to perform their professional obligations to each of their clients. It requires the adviser to assess the professional services required by each client with regard to their individual needs, priorities, circumstances and preferences, expressed or implicitly identified as the subject matter of the financial advisory engagement.

Whilst it may be possible to supplement the adviser’s professional competence by accessing the expertise of others, the duty of competence is ultimately personal and cannot be outsourced to others. If the adviser doesn’t possess the particular competencies required to assist their client, in accordance with other ethical requirements in the Code, they must refer their client to another professional.

The value of competence requires an adviser’s life-long commitment to developing and maintaining knowledge, skills and expertise at a level of currency required to benefit their clients in particular engagements, and in anticipation of other client engagements in the course of their professional career. It requires the adviser’s regular self-reflection and the exercise of professional judgement to determine when to augment their knowledge, skills and experience with assistance from other professional financial advisers, or indeed other professionals with specialist expertise in the service of the client’s best interests.

Further information about the competence value, including practical suggestions, is available at https://mynextadvice.com.au/fasea-code-of-ethics-values-competence/

What does the value of honesty mean?

According to FASEA, acting to demonstrate, realise and promote the value of honesty requires that the adviser conducts themselves with integrity in all their professional dealings with their clients and with all others that they engage with in the professional setting.

It requires transparency, frankness and fairness to each of their clients even where this may cause them personal detriment. Being honest means more than just technically telling the truth, it may require the adviser not to withhold information from their client that the client would want to know.

Further information about the honesty value, including practical suggestions, is available at https://mynextadvice.com.au/fasea-code-of-ethics-values-honesty/

What does the value of fairness mean?

According to FASEA, acting to demonstrate, realise and promote the value of fairness requires that the adviser brings professional objectivity to the task of engaging clients professionally, and when recommending financial products and professional services. It requires the adviser to properly investigate, evaluate and diagnose a client’s need for professional services, to self-reflect on the limits of their professional competency and on their capacity to deliver or access the necessary professional services required in the engagement in a manner that benefits their client.

It requires the adviser’s objective assessment of their own services (or their firm’s) and whether they can bring value to their client. It requires understanding the adviser’s personal biases, and it may require them to act to mitigate the threat of their own, or the client’s unconscious biases to their client’s decision making. Being fair requires that the adviser looks beyond their own interests and consider how others may judge or perceive their actions. Would their conduct stand public scrutiny by their professional peers and by the community?

Further information about the fairness value, including practical suggestions, is available at https://mynextadvice.com.au/fasea-code-of-ethics-values-fairness/

What does the value of diligence mean?

According to FASEA, acting to demonstrate, realise and promote the value of diligence requires that the adviser performs all professional engagements with due care and skill. It requires the adviser to manage their time and resources to deliver professional services in a timely, efficient and cost-effective way to each client. It is about the way the adviser goes about their professional work, the commitment they bring, and the values they espouse and demonstrate in all their professional interactions with their clients and with others.

It requires that the adviser exercises due care and skill in the way they:

    • engage each client;
    • understand each client;
    • diagnose each client’s needs and issues;
    • scope or limit the professional services they will provide each client;
    • develop strategy solutions and recommendations for each client;
    • develop product and service solutions and recommendations for each client;
    • ensure the strategy and product solutions they provide to each client are fit for purpose and are intended to improve the client’s financial well-being;
    • make required disclosures to each client in their Financial Services Guide, Statement of Advice and Record of Advice and in providing Product Disclosure Statements and Investment Memoranda;
    • implement agreed recommendations;
    • engage each client to deliver on-going services (including reviews) if appropriate;
    • undertake record-keeping in respect of the professional services they provide each client; and
    • meet their obligations in the law in respect of the advice they provide to each client including:
      • best interests’ duty;
      • appropriateness of advice;
      • prioritisation of client’s interests;
      • additional requirements for product replacement recommendations; and
      • Australian Taxation laws.

It requires that the adviser keeps abreast of developments and options for clients.

Further information about the diligence value, including practical suggestions, is available at https://mynextadvice.com.au/fasea-code-of-ethics-values-diligence/

Does a new entrant to the industry need to comply with the Code?

Yes. The Code applies to relevant providers, therefore when a new entrant passes the exam, and is authorised by their licensee as a Provisional Financial Adviser they are required to comply with the Code.

 As a licensee, what measures do I need to take from 1 January 2020 to ensure my advisers are complying with the Code?

ASIC released a communication on the 26 November 2019, detailing its expectations of licensees in ensuring their advisers are complying with the Code from 1 January 2020.

Financial advisers will still be required to comply with the Code from 1 January 2020 and AFS licensees will still be required to take reasonable steps to ensure that their advisers comply with the Code. However, after consultation with FASEA, ASIC will take a facilitative approach to compliance with Standards 3 and 7 of the Code until the new single disciplinary body is operational.

The reasonable steps that ASIC expects AFS licensees to take to ensure that their advisers comply with the Code include the following systems and processes:

    • making sure that their advisers are aware that they need to comply with the Code from 1 January 2020 onwards;
    • providing training and/or guidance to their advisers on the types of conduct that is consistent/inconsistent with the Code;
    • facilitating individual advisers’ ability to raise concerns with the AFS licensee about how the licensee’s systems and controls may be hindering their ability to comply with the Code, and acting on those concerns where appropriate;
    • considering whether advisers are complying with the Code as part of their regular, ongoing monitoring of adviser conduct; and
    • when it is in place, considering the decisions of the new disciplinary body and making any necessary changes to their systems and processes.

In determining what constitutes reasonable steps ASIC will take into account the context in which AFS licensees are operating. This includes the current dynamic regulatory environment, the timing of guidance provided by FASEA about the meaning of the Code, and the evolving industry understanding about the meaning and implications of the Code. This approach will allow the time required for any business model changes. 

ASIC’s full communication can be accessed at: 

https://asic.gov.au/about-asic/news-centre/find-a-media-release/2019-releases/19-319mr-asic-outlines-approach-to-advice-licensee-obligations-for-the-financial-adviser-code-of-ethics/

As an adviser, what evidence will I need to provide ASIC to ensure I’m not breaching the Code?

FASEA encourages each adviser to consult with their licensee regarding record keeping aligned with meeting the requirements of the Code. Given that the fundamental purpose of the Code is to ensure consistent delivery of good client outcomes and the restoration of community trust and confidence in the industry, it would be logical to collect feedback from clients about their advice experience and their adviser’s compliance with client-facing obligations under the Code, including realisation of the values.

As an adviser specialising in Insurance advice, will the commissions I receive for the advice I provide my clients be conflicted and will I breach the Code?

Insurance commissions are explicitly allowed by law and may be an acceptable form of remuneration for advice. In the context of a specific client situation, an adviser before acting for the client would need to satisfy themselves that they do not have an actual conflict by for example demonstrating the following:

    • The advice and product recommendation is in the best interests of the client;
    • The commission received is fair and reasonable and represents value for the client and is fully understood by the client;
    • The client understands benefits, costs and risks of the Insurance advice;
    • The advice and fee structure are appropriate for the client; and
    • A disinterested or unbiased person, in possession of all the facts, would reasonably conclude that the remuneration would not lead the adviser to prefer the interests of someone (including their own) over the client’s best interest.

As an adviser specialising in stockbroking, will the brokerage fees I receive for the advice I provide my clients be conflicted and will I breach the Code?

Brokerage fees are generally an allowable form of remuneration for advice on shares. In the context of a specific client situation, an adviser before acting for the client would need to satisfy themselves that they do not have an actual conflict by for example demonstrating the following:

    • The advice and product recommendation is in the best interests of the client;
    • The brokerage fee is fair and reasonable and represents value for the client and is fully understood by the client;
    • The client understands benefits, costs and risks of the share advice; 
    • The advice and fee structure are appropriate for the client; and 
    • A disinterested or unbiased person, in possession of all the facts, would reasonably conclude that the remuneration would not lead the adviser to prefer the interests of someone (including their own) over the client’s best interest.

As an adviser I have a referral arrangement with a Mortgage Broker. I refer my financial advice clients to the mortgage broker when my clients need help with their mortgage or any new loans. In return, the Mortgage Broker gives me a $500 payment from the commission he receives for the loan/mortgage. Given this is not a financial product that is affected by the Code can I still receive this fee?

Referral fees received from a third party directly to the adviser will breach the Code.

As a licensee or a Corporate Authorised Representative (CAR), I have contractual referral arrangements with third parties which will be difficult to change before 1 January 2020. Will my advisers breach the Code until these arrangements have been changed?

Licensee arrangements fall outside the Code and will not be required to change as they are not subject to the Code provisions. However, if the structure of these referral arrangements negatively impacts on the ability of relevant providers (advisers) to meet their obligations under the Code, FASEA would expect that they be reviewed and amended.

Where the adviser’s remuneration is related to the referral fee received via the licensee structure or CAR and is paid directly to the adviser, the adviser will need to demonstrate compliance with the Code in the same manner as any other form of remuneration received.

As an adviser, I have over the course of 2018 contacted my existing clients as the renewal of their Ongoing Service Agreement was required. Do I need to re-contact these clients after 1 January 2020 to seek their consent again?

An adviser who has recently received consent from the existing client for the service and fees they will be paying, does not need to re-contact the client to receive consent post 1 January 2020.  The next renewal period is sufficient.

As an adviser, I have existing clients who I do not regularly contact where I continue to receive commission. These clients are grandfathered pre the FOFA requirements. Do I need to contact them after 1 January 2020 to seek their consent?

An adviser will need to contact these clients as soon as practicable, to seek their consent post 1 January 2020.  Depending on the number of clients that meet this requirement, the adviser is expected to develop a plan that is practicable during 2020.

What format is required when obtaining consent from my clients?

An adviser will need to ensure they receive signed consent from their clients. This may be using existing forms e.g. Ongoing Service Agreement, Initial Service Agreement, Authority to proceed with Advice etc.  FASEA does not expect that a new form is created to meet this standard. 

How will AFCA assess complaints made after the Code commences?

According to AFCA, until the establishment of the single disciplinary body to monitor and enforce the Code, AFCA will take a measured and considered approach to interpreting the Code’s provisions. AFCA will only assess adviser conduct against the Code where a complaint and the conduct has occurred after 1 January 2020.

AFCA will assess adviser conduct by giving the Code its practical meaning, taking into account:

    • the intention and objectives of the Code as a whole and the professional standards framework from which it is derived
    • the current legislative, regulatory and professional environment within which the Code operates.
    • FASEA’s guidance on the operation of the Code’s values and standards; and
    • ASIC’s expectations about steps Australian financial services licensees should take to ensure their advisers comply with the Code and specifically the guidance that they will take a facilitated compliance approach with respect to Standards 3 and 7 while FASEA continues to refine its guidance over the period up to the establishment of the single disciplinary body.

Further details can be found at https://www.afca.org.au/news/media-releases/afca-approach-to-adviser-conduct-obligations/

DISCLAIMER

This resource was compiled and issued in January 2020 and is point in time content based on or extracted from the Financial Planners and Advisers Code of Ethics 2019 Legislative Determination, the accompanying Explanatory Statement and Guidance and Preliminary Response to Submissions issued by FASEA, together with our proprietary research and intellectual property. It does not constitute legal advice. We encourage you to seek your own professional advice on how the FASEA Code of Ethics may apply to you. Suggestions in this article are not exhaustive and are not intended to be binding on the author or related entities. Further guidance may be released by FASEA and may change the content of this point in time resource.

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