Ever since it was announced FASEA would be wound up late last year, there have been questions about what the Government plans to do with the adviser professional standards regime - and more specifically, what will become of the FASEA Code of Ethics.
As we pointed out recently, the Code of Ethics (and its practical applications) has been a consistent bugbear for many advisers participating in the mandatory exam. In the linked piece, I argued that the fact it's such a regular area of underperformance in FASEA's bimonthly exam wrap-ups suggests there are fundamental issues with the Code, despite FASEA's multiple attempts to provide it with further clarification.
Based on the information provided by Treasury thus far, though, it appeared as if there were no concrete plans to address these issues. The explanatory material accompanying the Financial Sector Reform (Hayne Royal Commission Response—A New Disciplinary System for Financial Advisers) Bill 2021 acknowledged advisers' concerns but said no decisions had been made regarding "when or if to change the Code of Ethics or other standards."
What could change?
To be clear: nothing further has come out of Treasury since then which would indicate a change of heart. But in his opening statement to the Senate Estimates Committee last week, FASEA CEO Stephen Glenfield said change could well be on the horizon.
While Glenfield defended the Code as it currently stands, arguing that it's clear its purpose isn't to "ban particular forms of remuneration," he said the submissions FASEA has received imply that advisers are "generally seeking further guidance and examples to be incorporated into the guide or the standard itself to further assist with understanding and implementation."
Glenfield added that Standard 3 of the Code - the one prohibiting advisers from "advising, referring or acting any other manner" where a conflict of interest is present - was a particular topic of discussion in the submissions. This is understandable; as acting AFA CEO Phil Anderson has pointed out, conflicts of interest are common in financial services and can never be fully eradicated.
Suggestions included in the submissions FASEA has received include:
Glenfield said FASEA will be consulting further with stakeholders later this year regarding the wording of Standard 3 - on top of that, it will liaise with Treasury "to ensure they are across the range of stakeholder views to inform future decisions with the Code."
The Government's role
While it seems unlikely at this stage that FASEA or Treasury will be addressing what our community has identified as one of the most fundamental problems about the Code - namely, that "ethics" isn't something that can be mandated and dictated via legislative instrument - Glenfield's comments suggest changes may be possible sooner rather than later.
Speaking more broadly about the transfer of FASEA's functions to Treasury, Glenfield said that he was unaware if any existing FASEA staff will move over to the new professional standards body. When asked by Senator Anthony Chisolm whether FASEA's dissolution could partly be attributable to the Government not providing sufficient resources, Glenfield demurred.
Senator Jane Hume described Chisolm's question as "entirely unfair," saying Treasury's decision to absorb FASEA simply reflected an "opportunity for some regulatory alignment."
Glenfield was also asked about what role he think FASEA played in the declining number of financial advisers on ASIC's register - which recently dipped below 20,000. He said it was "a difficult one for me to give an opinion on," but argued that there were a "range of things" causing it.
"If you look at those big players we were referring to before," Glenfield said, "the numbers of their advisers that have reduced is significant. I was looking just the other day and our original contributors had about 6,000 advisers and that's down to around 2,000 and a bit."
He continued: "They're big numbers that are coming out of restructuring of the industry. There are those, obviously, that won't want to meet the higher standards. It was, I think, recognised in the FSI that that was a likely outcome. The question becomes: how many advisers do you need for the number of people seeking advice? I don't have evidence on that, so it's difficult for me to comment."
Given that the stated purpose of the Government's recently-merged Quality of Advice review is to "appropriately consider the full breadth of issues impacting on both quality and affordability of all forms of financial advice," this is a question that will eventually need to be answered.
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