This post provides FASEA Code of Ethics guidance about three words that every adviser should be focused on from 1 January 2020 in order to demonstrate compliance with the code. The relevant legislative instrument (Financial Planners and Advisers Code of Ethics 2019) is very clear and unambiguous:

          You must always act in a way that demonstrates, realises and promotes the following values:

                     (a)  trustworthiness;

                     (b)  competence;

                     (c)  honesty;

                     (d)  fairness;

                     (e)  diligence.”

The same instrument confirms that “These values are paramount.” And that “All the other provisions of this Code must be read and applied in a way that promotes the values.” This literally means that the twelve (12) standards of conduct prescribed by the code are subordinate to but directed towards achieving the values. While much of the industry’s attention has been focused on the standards, there has been little discussion about the core obligation imposed by the code.

There remains a lot of uncertainty about what will or won’t be acceptable from 1 January 2020 and this has been exacerbated by the absence of a regulatory body to monitor compliance and take disciplinary action. It’s unsurprising the industry appears to have put the code on the back burner to some extent because there simply is no ‘cop on the beat’ and priority has been given to addressing the effects of COVID-19.

However, the government recently announced it will have enabling legislation to establish the proposed Single Disciplinary Body (SDB) by mid-2021. FASEA will cease to exist and its current functions transferred to the Treasury (standards setting) and the Financial Services and Credit Panel (FSCP) which sits within ASIC (education, monitoring, and discipline).

There is no suggestion that advisers will be absolved of any transgressions against the code leading up to the formal establishment of the SDB, which means the legal obligation time bomb continues to tick for each adviser and licensee.

So the logical questions for licensees and advisers are how do I monitor my advisers’ conduct to ensure compliance and how do the advisers provide evidence, if called upon to do so, that they have demonstrated the values, realised the values and promoted the values?

Given the gravity associated with non-compliance (for both licensees and advisers), we thought it would be useful to examine some ideas to see how compliance with the core obligation could be operationalised in practice.

Demonstrate

According to the Cambridge Dictionary, the word demonstrate (a verb) can have several meanings:

      • To show or make something clear e.g. using research to demonstrate something is true or untrue;
      • To show something and explain how it works e.g. the salesman promised to demonstrate how the gadget worked;
      • To express or show that you have a particular feeling, quality, or ability e.g. my adviser was able to demonstrate the qualities of trustworthiness, competence, honesty, fairness, and diligence in their dealings with me;
      • To make a public expression that you are not satisfied about something, especially by marching or having a meeting e.g. the teachers scheduled a meeting to demonstrate their dissatisfaction with the new timetable.

In the context of the code, it is clear the third meaning best fits what advisers are expected to do when they demonstrate the values.

While expressing qualities or abilities through communication is important and consistent with the code, the real test is whether the adviser consistently shows they have the qualities or abilities associated with trustworthiness, competence, honesty, fairness, and diligence. This requires the execution of meaningful actions (walking the talk) consistent with the values and standards prescribed by the code.

For example, some questions related to whether actions were taken to demonstrate the value of trustworthiness could be:

      • Did I act in my client’s best interests at all times?
      • Did I take reasonable steps to meet all my commitments to my client?

For a more substantial list of questions (and actions) that could be considered for each of the values, please visit our blog FASEA Code of Ethics Values.

From a legal perspective, the definition of demonstrate is very similar to those identified above:

      • to show; to show that something is true by giving evidence or proof; to give a practical explanation as to how something works; to show or express something through the way that you act e.g. the prosecutor needed to demonstrate that the accused wilfully killed others.

From this examination of possible interpretations, it is clear how advisers need to demonstrate the values. Let’s now look at how they can realise the values.

Realise

Once again, using the Cambridge Dictionary, the word realise (a verb) can have these meanings:

      • To understand a situation, sometimes suddenly e.g. the adviser suddenly realised they were late for a client appointment;
      • To achieve something you were hoping for e.g. trustworthiness, competence, honesty, fairness, and diligence – Wendy realised her ambition for professional recognition as an adviser;
      • To be sold for a particular amount of money e.g. Thomas sold his Aston Martin for $75,000 (this is also reflected in the legal definition of realise);

We believe the second meaning best fits what advisers are expected to do in the context of the code. But is it good enough to say that the values have been realised without providing tangible evidence to prove realisation? The expectation is clear that advisers must be able to provide evidence of their compliance if called upon to do so.

The realisation of something is the output of behaviours and conduct (actions) demonstrated by each adviser. Given that the code was introduced to ultimately drive better outcomes for consumers, it’s logical that only one person can provide evidence of realisation – the client, based on their experience of working with their adviser. This can be done via a well-designed and worded client feedback mechanism that measures the existence of the code’s values (amongst other important variables).

For example, clients can provide feedback about whether they think their adviser acted in their best interests at all times, which helps inform the realisation of several values – trustworthiness, integrity, and honesty. Next, how should an adviser think about promoting the values?

Promote

Using the Cambridge Dictionary once again, the word promote (verb) can have several meanings:

      • To encourage people to like, buy, use, do, or support something e.g. every adviser has a responsibility to promote the values of the code.
      • To raise someone to a higher or more important position or rank e.g. William was promoted to the position of Senior Adviser;
      • To advertise something in order to sell it e.g. Carpe Diem Advisers promoted their expertise in estate planning;
      • To encourage or support something, or to help something become successful e.g. the advice industry launched a campaign to promote financial wellbeing.

It’s clear that the first meaning best fits what advisers are expected to do in the context of the code. This is also supported by the legal definition:

      • To help or encourage something to grow or develop e.g. the code aims to promote responsible gambling.

As a role model, who consistently demonstrates and realises the values of the code, an adviser will in fact also be promoting the same values to those around them e.g. clients, work colleagues, other members of professional associations, regulators, the media, etc. Advisers can also promote the values through direct conversations with those stakeholders. For example, encouraging a co-worker to change their behaviours to better reflect the values of integrity and honesty, not only in their dealings with clients but other co-workers.

Conclusion

The legislation sets very clear expectations that advisers must always demonstrate, realise and promote the values of the code. But what does this mean in practice? Based on our analysis, we believe this means:

      • Demonstrate – the adviser needs to consistently show they have the qualities or abilities associated with trustworthiness, competence, honesty, fairness, and diligence. This requires the execution of meaningful actions (walking the talk) consistent with the values and standards prescribed by the code.
      • Realise – the adviser needs to actually achieve the values and be able to provide tangible evidence of having done so.
      • Promote – the adviser needs to not only demonstrate and realise the values (which will indirectly promote them amongst key stakeholders) but should also take direct action to support the values of the code.

Disclaimer

This article is point in time content based on the Financial Planners and Advisers Code of Ethics 2019 Legislative Determination, the accompanying Explanatory Statement and Guidance and Preliminary Response to Submissions, 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 suggestions within this point in time article.

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