In a letter to members, Association of Financial Advisers general manager, policy and professionalism Phil Anderson said advisers won't be able to "look forward to time off" over the Christmas break because of the "huge challenge" with introducing the FASEA Code of Ethics on 1 January, 2020.
Commenting further, Anderson said the Code "has the potential to fundamentally change the way financial advice is practiced," adding that it appears that FASEA has "chosen to use this as an opportunity to rewrite the law."
“With all forms of commissions and asset-based fees now in doubt,” Anderson said, “57% of financial adviser practice income is at risk, as a result of this version of the Code of Ethics. This will impact both financial advisers, but also their clients, who might be forced to change their adviser’s remuneration arrangements at very short notice.”
Anderson said the AFA has significant concerns regarding five key points:
Impacts on scaled advice
First, Anderson said the Code impedes the ability to provide cost-effective scaled advice by “mandating the requirement for a much more comprehensive understanding of the client’s full current personal circumstances, broader family circumstances and likely future circumstances.”
“The outcome of this,” he added, “will be a reduction in both access to financial advice and the affordability of financial advice.”
Conflicts of interest
Regarding standard 3, Anderson said this part of the Code “is completely inconsistent with the long established requirements to manage and disclose conflicts of interest. Conflicts are very common in financial services and exist in ways that do not disadvantage clients.”
“They cannot be completely eradicated,” he said, “and an outright ban would be entirely impractical.”
Anderson also said existing practices will be challenged by the ban on “the receipt or provision of referrals for a benefit, including any expectation of reciprocal referrals,” and that this will also “impact upon the flow of new clients for many businesses that rely upon referral arrangements.”
Furthermore, the new requirements pertaining to incomplete information and informed consent, Anderson said, “will make it very difficult to advise clients who for personal or cultural reasons do not want to provide all their personal information, or for whom they do not wish to or do not have the capacity to fully understand every aspect of the services that are being provided, or the remuneration or the implications of the advice.”
Finally, Anderson said the AFA believes it will be excessively costly for advisers to be required to “obtain a new consent from existing clients to reconfirm ongoing service arrangements and ongoing remuneration as soon as practicable after the commencement of the Code.”
Anderson concluded by saying that existing guidance on the Code of Ethics “has provided little insight into the requirements of the Code of Ethics or direction for financial advisers.
“The guidance document has instead opened up additional areas of confusion,” he said. “Many of the examples are either of limited benefit, as they are obviously noncompliant, or they fail to address the core issues where guidance is required.”
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