FASEA’s Code of Ethics is underpinned by the five (5) ethical values of trustworthiness, competence, honesty, fairness, and diligence. FASEA Code of Ethics Values dictate how all ‘relevant providers’ (advisers) are required to behave from 1 January 2020. They must always act in a way that demonstrates, realises and promotes these values.

There has been an unmistakable focus on compliance outcomes, particularly since the Royal Commission, so it’s easy to see why licensees and their advisers are currently pre-occupied with trying to interpret the practical meaning and implications of each of the twelve (12) standards of the code.

While understanding and applying each of the standards is very important, the ultimate test, as prescribed in the legislation, is whether the adviser has conducted themselves in a manner that demonstrates the values, realises the values and promotes the values. Licensees and advisers who are possibly approaching compliance with the code as a box-ticking exercise around the standards may be missing the point.

The values are paramount and non-negotiable. All other provisions of the code must be read and applied in a manner that promotes these values. So, the real challenge is to apply the values every day when undertaking professional activities with clients, consumers, colleagues, and the public.

Individual advisers, who are ultimately responsible for demonstrating, realising and promoting these values through their actual day-to-day behaviours, need to think, feel and act in a manner consistent with the values.

This post seeks to provide licensees and their advisers with a resource to help them better understand each of the values in the code and to offer some practical guidance about how to work towards achieving them.

TRUSTWORTHINESS

The government and relevant regulators have made it abundantly clear they are responding to the Royal Commission findings for the principal purpose of improving the level of trust and confidence the community has in the financial advice industry. These critical outcomes are closely intertwined – it’s difficult to generate confidence in anything without first establishing a suitable level of trust.

So, one of the first and most critical issues a client will seek to address in their relationship with an adviser is the issue of trust. Can you demonstrate that you are worthy of my trust? Will you act in my best interests at all times and place my personal and financial interests before your own? If I can’t trust you, why should I do business with you?

A Definition

Our definition of trust is that it is the degree of confidence that a prospect or client has that their adviser can be relied on to fulfill their commitments, be fair, be transparent, and not take advantage of their vulnerability.

Information asymmetries will always exist between a client and their adviser because the adviser will usually have more information at their disposal relative to the advice topic being addressed. So, a prospect or client anticipates that you will not engage in unexpected behaviours, irrespective of their ability to monitor or control your activities.

FASEA’s Perspective

“Acting to demonstrate, realise and promote the value of trustworthiness requires that you act in good faith in your relationships with other people. Trust is earned by good conduct. It is easily broken by unethical conduct.

You earn trust by being reliable in your relationships with others, and by doing what you say you’ll do. Trust requires having the courage to do what is right, even though you may suffer personal detriment by doing so. It requires that you are loyal to each of your clients and that you keep client personal information entrusted to you private and confidential. It requires that you should not subordinate your duty to your client, or your client’s lawful interests, to your own interests and any obligation you may owe to a third party, including an employer or a financial services licensee.

Trust requires you to act with integrity and honesty in all your 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.”

Please note that trustworthiness isn’t a standalone value – it is informed by and interacts with other values such as integrity and honesty (the latter being one of the other four values underpinning the code). In the extensive research we’ve undertaken over many years, we have isolated a number of relationship variables that are responsible for >75% of the variance in the trust score.

As you will know from your own experience, trust can take quite a bit of time to develop, however, it can also be destroyed very quickly through unthinking actions or omissions. Everything you do in the conduct of your business needs to be seen in this context. Trust is earned over time through consistent good conduct, undertaking regular reviews of each client’s circumstances, educating them along the way and through ongoing quality communication.

As we’ve been collecting data from clients of advice businesses for some time, we know for a fact that trust is highly correlated in a positive way to how much clients value their relationship, the extent to which they are prepared to forgive when things don’t go to plan (and this will happen), whether they are likely to remain a client and whether they are prepared to refer you to their friends, family and work colleagues.

The implications are very significant. The higher the level of trust you can achieve with clients, the more likely they are to value you and your advice (think value for money), forgive you, stay with you and advocate for you – all highly positive outcomes for an adviser’s career and business.

Some Practical Suggestions For Implementing Code of Ethics Value Trustworthiness

Start a checklist

As you consider what can be done to prepare for life under the code, you could think about using a checklist of questions relevant to your dealings with prospects and clients and use the checklist to guide your actions. Here are a few suggestions about what questions to include on your checklist.

    • Will I derive an inappropriate personal advantage if my client accepts my advice recommendation(s)?
    • Have I disclosed any actual or potential conflicts of interest to my client during the advice process?
    • Did I apply a high level of relevant knowledge and skills when advising my client?
    • Will my advice put my client in a better financial position?
    • 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?
    • Was I open, honest and frank in all my dealings with my client?
    • Did I keep client information private and confidential?
Take action

It’s also important that you take action to demonstrate your trustworthiness, and here are a few practical actions you could consider to improve the level of trustworthiness.

    • Think about how you treat colleagues and family because this is likely to be mirrored in your treatment of clients (the ‘golden rule’ – do unto others as you would have them do to you)
    • Transparency in everything you do will establish or repair trust fast. Ask yourself if you are withholding information that should be shared with your client and why. Err on the side of disclosure. Don’t have hidden agendas and don’t try to hide information.
    • Communicate results. Don’t just talk about what you are going to do for your clients, but make it happen and, importantly, communicate those results so they become tangible in the eyes of your clients. Promises made versus promises delivered. Results give you instant credibility and instant trust. Do what you say you are going to do and deliver on time. Don’t over-promise and under-deliver.

Another important issue to consider is the need to establish clarity around your client’s expectations (what does their version of ‘success’ look like?) and temper that with your ability to deliver. You have to know what ‘success’ means to the client, what they will value from you and whether you can deliver.

COMPETENCE

Each of your clients will be interested in the competence you can exercise (and demonstrate) whilst delivering your professional services. Can I count on you to have the knowledge, skills and experience to assess and deliver the services I require? Can you put me in a better financial position and help me achieve my goals?

A Definition

Our definition of competence is that it is the degree to which your interactions with your clients meet performance expectations through the exercise of knowledge, skills and experience. It typically comprises a combination of practical and theoretical knowledge, cognitive skills, behaviours, and values. These are used in the course of evaluating individual needs and then delivering appropriate and relevant advice for the benefit of clients.

FASEA’s Perspective

From FASEA’S perspective:

“Acting to demonstrate, realise and promote the value of competence requires you to have regard to the knowledge, skills and experience necessary to perform your professional obligations to each of your clients. It requires you 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 your professional competence by accessing the expertise of others, the duty of competence is ultimately personal and cannot be outsourced to others. If you don’t possess the particular competencies required to assist your client, in accordance with other ethical requirements in the Code, you must refer your client to another professional.

The value of competence requires your life-long commitment to developing and maintaining knowledge, skills and expertise at a level of currency required to benefit your clients in particular engagements, and in anticipation of other client engagements in the course of your professional career.

It requires your regular self-reflection and the exercise of professional judgement to determine when to augment your 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.”

We would argue that a big part of competence is being able to identify what ‘success’ looks like from the client’s perspective and then being able to self-assess if you have the relevant knowledge, skills and experience to deliver that outcome. Advisers need to be aware of the boundaries of their knowledge and communicate the limits of their competence to clients where necessary. Competence is also interlinked with the other values of diligence and fairness as it relates to the delivery of professional services.

We also know from our research that competence is positively correlated to client satisfaction and can contribute to the reduction of conflict in the adviser/client relationship.

Some Practical Suggestions For Implementing Code of Ethics Value Competence

Start a checklist

Here are a few suggestions about what questions to include on your checklist.

    • Did I explain the advice process in a way that my client could understand?
    • Did I understand and take into account my client’s needs, priorities, circumstances, and preferences?
    • Did my advice and recommendations take into account my client’s broader long-term interests and likely circumstances?
    • Was the advice I provided my client communicated in plain English and clear and simple?
    • Did I take steps to help my client understand and consent to the advice I provided?
    • Did I clearly explain the benefits, costs and risks associated with the advice/products I recommended to my client?
    • Were the advice and recommendations I provided to my client appropriate to their circumstances?
    • Did I apply a high level of knowledge and skills?
Take action

Here are a few practical actions you could consider.

    • Ask your client the right questions to clearly understand what their needs, priorities, circumstances and preferences are – use open-ended questions at the outset to build a broad-based understanding, then ask more specific questions to identify what ‘success’ looks like in their eyes.
    • Prepare some open-ended questions in advance of your review meeting – here are some examples:
      • If we were meeting again three years from today, and you were looking back over those three years, what has to have happened in your life for you to feel happy with your progress?
      • What are the biggest challenges you will have to face in order to achieve that progress?
      • What are the biggest opportunities that you would need to focus on to achieve those things?
      • What role would you like me to play during those three years?
      • Do you feel as if you’re currently reaching your goals? Why/why not?
      • What changes are you expecting to occur in the next 6-12 months?
      • What are your most pressing financial concerns?
      • Do you feel that I have fully understood your needs so far?

Be honest in your assessment of your competencies when deciding if you are well-positioned to perform your professional obligations. Do I have the right mix of knowledge, skills and experience appropriate to the client’s advice requirements? If not, you are required to refer your client to another professional.

HONESTY

No one wants to do deal with a dishonest person, so your clients want to see evidence that you consistently conduct yourself in an honest manner. Can I count on you to be totally transparent, frank and fair in your dealings with me?

A Definition

Our definition of honestly is that it is a key facet of moral character. It embodies virtuous attributes such as integrity, transparency, and truthfulness and involves being trustworthy, fair, and sincere.

FASEA’s Perspective

From FASEA’s perspective:

“Acting to demonstrate, realise and promote the value of honesty requires that you conduct yourself with integrity in all your professional dealings with your clients and with all others that you engage within the professional setting. It requires transparency, frankness, and fairness to each of your clients even where this may cause your personal detriment. Being honest means more than just technically telling the truth, it may require you not to withhold information from your client that your client would want to know.”

You will note the reference to fairness which is another value underpinning the code and it is also interrelated with trustworthiness.

An adviser may need to have difficult conversations with clients about the reality of achieving their goals and the implications of their financial decisions. Generally, there are fewer data points to be found in a professional setting for clients to form a view about their adviser’s honesty. So, the perception of honesty becomes very important when developing interpersonal relationships with clients and communication is key.

Some Practical Suggestions For Implementing Code of Ethics Value Honesty

Start a checklist

Here are some suggestions about what questions to include on your checklist.

    • Did I provide my client with a clear and simple explanation of my proposed advice service before they formally engaged with me?
    • Did my client understand and agree with the proposed advice service?
    • Before they formally engaged with me, did I provide my client with a clear and simple explanation of all the fees, charges and other benefits I would receive?
    • Did the client understand all the fees, charges and other benefits I would receive and freely provided their consent before the engagement commenced?
    • Did the client understand what information would be kept by me, including privacy and confidentiality arrangements?
    • Did the client decline to take up my recommendations due to concerns they had about a personal advantage I would receive?
    • Did I disclose any actual or potential conflicts of interest to my client during the advice process?
    • Did I act honestly, efficiently and fairly when recommending all advice and products to my client?
    • Did I provide the required attention, skills and time to the client throughout the advice process?
    • Do I believe my recommendations will put the client in a better financial position?
    • Do I believe that I acted in my client’s best interests at all times?
    • Did I take reasonable steps to meet all of my commitments to the client?
    • Do I believe I was open, honest and frank in all my dealings with my client?
    • Did I treat my client in a respectful and professional manner at all times?
Take action

Here are a few practical actions you could consider.

    • Be honest and truthful with your clients, even it may seem uncomfortable to you. Honesty requires some personal vulnerability, and most of us have a hard time with that. If you can’t help your client with something, it’s best to be honest from the outset. If you can’t deliver something by a client-driven deadline, make sure you communicate that before the deadline passes. Sometimes you need to set expectations about what’s possible then work hard to exceed those expectations.
    • Don’t make promises you know you can’t keep. Some people are great at making outrageous claims and promises, but few of them will last very long in an emerging profession like financial advice where the level of scrutiny will only intensify. Making promises you can’t keep will hurt you, your practice and licensee. Social media is a two-edged sword and clients are more inclined these days to tell all their friends about their disappointments.
    • Don’t take any shortcuts. Advisers with integrity already know there are no short-cuts. Building a successful client portfolio takes time and a lot of hard work.
    • Raise the bar in the industry. Operating with integrity doesn’t just lift you up, it raises the bar for the whole industry as well (something that’s needed right now). Other practices can’t compete with you if they don’t operate with the same high level of integrity.

FAIRNESS

Clients want to know if you will provide them with advice that has been objectively formulated from available options, based on a clear understanding of their needs, and delivered in a competent manner. Can I count on you to thoroughly investigate, evaluate and diagnose my needs and only deliver the right services if you are competent to do so?

A Definition

Our definition of fairness is that it is the presence of a state of impartiality (without bias) when recommending financial products and services arising from a thorough investigation and proper identification of client needs, delivered in a competent manner.

FASEA’s Perspective

From FASEA’S perspective:

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

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

You will note that the value of fairness is also linked to the values of competence and honesty.

In our research, we have identified that fairness is closely related to the concept of equity (the extent to which the distribution of outcomes is just and fair) which is positively correlated with a reduction in conflict, together with improved trust and satisfaction.

Some Practical Suggestions For Implementing Code of Ethics Value Fairness

Start a checklist

Here are some suggestions about what questions to include on your checklist.

    • Did I act honestly, efficiently and fairly when recommending all advice and products to my client?
    • Did I provide the required attention, skills and time to the client throughout the advice process?
    • Did I treat my client in a respectful and professional manner at all times?
Take action

Here are a few practical actions you could consider.

    • Consider the scope of your licensee’s Approved Product List (APL) to ensure its breadth is sufficient to allow you to act with fairness.
    • Only recommend financial products and professional services that are clearly required in order to meet the client’s needs and that you can deliver in a competent manner.
    • Treat your clients the way you would like to be treated. Do no harm.
    • Be honest in your assessment of your competencies when deciding if you are well-positioned to perform your professional obligations to your client.

DILIGENCE

Diligence is action-oriented, so clients want to know if they can count on you to not only act in a manner that applies your knowledge to the development and implementation of advice but also to deliver your services in a timely, efficient and cost-effective way.

A Definition

Our definition of diligence is that it represents the efficient delivery of a service in a timely and cost-effective manner using relevant knowledge, skills, determination and care.

FASEA’s Perspective

From FASEA’s perspective:

“Acting to demonstrate, realise and promote the value of diligence requires that you perform all professional engagements with due care and skill. It requires you to manage your time and resources to deliver professional services in a timely, efficient and cost-effective way to each client.

It is about the way you go about your professional work, the commitment you bring, and the values you espouse and demonstrate in all your professional interactions with your clients and with others.

It requires that you exercise due care and skill in the way you:

    • engage each client;
    • understand each client;
    • diagnose each client’s needs and issues;
    • scope or limit the professional services you 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 you provide to each client are fit for purpose and are intended to improve your client’s financial well-being;
    • make required disclosures to each client in your 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 you provide each client; and
    • meet your obligations in the law in respect of the advice you 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 you keep abreast of developments and options for clients.”

This suggests there is a linkage to the value of competence, requiring knowledge, skills, and experience. Based on our research and experience, the requirement to deliver services in a timely, efficient and cost-effective way indicates twin requirements to minimise client effort and maximise value for money.

Some Practical Suggestions For Implementing Code of Ethics Value Diligence

Start a checklist

Here are some suggestions about what questions to include on your checklist.

    • Did I take into account my client’s needs, priorities, circumstances, and preferences?
    • Did I take into account my client’s broader, long-term interests and likely circumstances?
    • Were my advice and recommendations fit for purpose and intended to improve my client’s financial well-being?
    • Was I easy to work with?
    • Were my fees and charges fair and reasonable and did they represent value for money?
Take action

Here are a few practical actions you could consider.

    • Plan well and pace yourself to ensure the advice you provide clients is delivered according to promised timelines and using the most efficient processes possible, making it easy for clients to do business with you.
    • Take full responsibility for the on-time delivery of relevant advice to a client, even though some aspects have been delegated to others on the team.
    • Ensure that advice workflows and processes are designed in a way that eliminates the possibility of inefficiencies and delays.

We hope this article about the values prescribed by the FASEA Code of Ethics has been useful.

Disclaimer

This article was issued in January 2020 and 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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