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FINS5537: Financial Planning Advice & Ethics
FINS3637: Wealth Management Advice & Ethics
Lecture Eight
Dealing with Ethical
Dilemma
Code of Ethics
Lecturer: Nidal Danoun
n.danoun@unsw.edu.au
References and Readings
• Ethics and professional Practice in Financial Planning 1st Edition – Cull et all, LexisNexis
• Everyday Ethics for Financial Advisers - The Ethics Centre
• Financial Planning in Australia latest Edition- Taylor, LexisNexis
• Thomson Financial Planning Handbook
• Financial Planning 2nd edition – Mckeown et all,Wiley
• Corporations Act (Chapter 7)
Ethical Decision Making Framework (EDMF) - CFA
.
Dealing with Ethical Dilemma
Common Issues to consider
• Complexity
• Prepare for difficult decisions to be made
• Ethical thinking
• Beware of biases
• Having a process → EDMF
• Consistency of outcomes
• Act and reflect
• Ongoing learning → Not a set and forget
Ethical Theory
Financial Advisers Code of Ethics
Code of Ethics
Ethical Theory
Introduction
The Financial Planners and Advisers Code of Ethics (“the
Code”) applies to all registered financial advisers in Australia.
The Code is a legislative instrument and is enforceable by law.
A legislated code of ethics is the first of its kind in Australia
and internationally.
Most codes of ethics are written and enforced by professional
industry bodies, but this code is an exception.
12 ethical standards form the Code and the associated
explanatory statement and guidelines.
Introduction
Ethical Theory
Background
The Code was developed to restore trust in Australia’s
financial system and to build a stronger economy.
The Code was formed in response to financial providers and
services collapses in Australia during the global financial
crisis, and the later public scandals of major banks in Australia
involving financial advice.
Background
Ethical Theory
The Code was introduced to the Corporations Act 2001 (Cth) in March 2017
through the Corporations Amendment (Professional Standards of Financial
Advisers) Act 2017 (Cth) to raise the education, training, and ethical standards of
financial advisers providing personal advice to retail clients on financial products.
The Code applies to all financial advisers on the FAR and all provisional advisers.
Existing and new financial advisers must complete a course on ethics and
professionalism, which covers content on the Code of Ethics.
Background
Ethical Theory
The Financial Adviser Standards and Ethics Authority
The Financial Adviser Standards and Ethics Authority (FASEA) was
declared as the standards body under s 921U of the Corporations
Act 2001 (Cth) and given responsibility for making a code of ethics.
FASEA made the Code of Ethics by legislative instrument to
commence from 1 January 2020.
FASEA is a Commonwealth company limited by guarantee.
It was perceived that a Commonwealth body would be more likely to
restore confidence in financial services than an industry body.
Although FASEA is a Commonwealth company, its standard setting
function is independent of government.
The Financial Adviser Standards and Ethics Authority (FASEA)
Ethical Theory
FASEA Funding Model
FASEA was to be funded by industry.
FASEA was initially funded by a levy imposed on the major
banks.
Industry funding of $3.9 million annually was to be provided,
based on adviser numbers.
Funding covers the costs of implementing the professional
standards in the Corporations Act 2001 (Cth).
The Financial Adviser Standards and Ethics Authority (FASEA)
Ethical Theory
Funding agreement expired on 30 June 2021.
The government is now disbanding FASEA and transferring its powers into
Treasury and ASIC’s Financial Services and Credit Panel from 1 January 2022.
A new funding model is yet to be confirmed.
Ethical Theory
Main themes of the Code
Principles-based model that promotes client best interests and
engages each individual financial adviser with their duties to
both clients and broader society.
The Code of Ethics focuses on five main themes:
1. Acting in the best interests of clients;
2. Avoiding all conflicts of interest;
3. Obtaining informed consent of clients to provide advice, and
pay associated fees;
4. Ensuring clients understand the advice they receive; and
5. Maintaining educational requirements to ensure a high level
of knowledge and skills.
What is in the Financial Planners and Advisers Code of Ethics?
Ethical Theory
Overarching domains
The 12 standards that form the Code of Ethics are further split
into four overarching domains containing three standards
each, as follows:
1. Ethical behaviour – Standards 1, 2 and 3;
2. Client care – Standards 4, 5 and 6;
3. Quality process – Standards 7, 8 and 9; and
4. Professional commitment – Standards 10, 11 and 12.
What is in the Financial Planners and Advisers Code of Ethics?
Ethical Theory
Ethical behaviour
There is a reciprocal relationship between ethical behaviour
and the value of trust, in that ethical behaviour influences
perceptions of trust and trust influences perceptions of ethical
behaviour.
The 12 Standards of the Code of Ethics – Ethical Behaviour
Currently
under
review
Ethical Theory
Client Care
Relates to an adviser knowing their individual clients’
circumstances and ensuring that all recommendations are
appropriate to these circumstances and in the best interests of
their clients.
Values of honesty and trustworthiness underpin these
standards & values of competence, diligence, and fairness
apply specifically.
The 12 Standards of the Code of Ethics – Client Care
Ethical Theory
The 12 Standards of the Code of Ethics – Client Care
Ethical Theory
Quality Process
Adviser must take the necessary steps to ensure the process of delivering advice is
in accordance with the five values of the Code.
An adviser may utilise specific systems and procedures to ensure ethical behaviour
is demonstrated in the advice process, e.g. file notes, checklists, agreements from
clients, video or audio recordings of meetings.
The 12 Standards of the Code of Ethics – Quality Process
Ethical Theory
Standard 7
The client must give free, prior and informed consent to all benefits you and your 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, you may not receive any
benefits, in connection with acting for a client, that derive from a third party other than your
principal.
You must satisfy yourself that any fees and charges that the client must pay to you or your
principal, and any benefits that you or your principal receive, in connection with acting for the
client are fair and reasonable and represent value for money for the client.
Standard 8
You must ensure that your records of clients, including former clients, are kept in a form that
is complete and accurate.
The 12 Standards of the Code of Ethics – Quality Process
Ethical Theory
Professional Commitment
These standards refer to developing, maintaining, and
applying a high level of knowledge and skills relevant to the
provision of financial advice; cooperating with any legal
investigations into any potential breaches of the Code; and
upholding the ethical values and standards outlined in the
Code for the protection of broader society.
The 12 Standards of the Code of Ethics – Professional Commitment
Ethical Theory
The 12 Standards of the Code of Ethics – Professional Commitment
Ethical Theory
Values
The key principles underlying the Code are supported by five
values espoused in the Code.
A relevant provider must always act to realise and promote the
following values:
Values Espoused by the Code
Trustworthiness Competence Honesty
Fairness Diligence
Ethical Theory
Trustworthiness
“Trust is the expectation that the adviser (‘trustee’) can be
relied on to act honestly, competently and in the best interests
of the client (‘trustor’) and thereby reduce the trustor’s risks of
loss.” (Cull, 2015).
The definition of trust includes the values of competence and
honesty — both of which are included separately in the Code
of Ethics.
Values Espoused by the Code – Trustworthiness
Ethical Theory
Competence
Competence, as indicated by qualifications, behavioural skills,
and technical skills, is vital in financial planning.
The ‘Birkett report’ (1996) outlines 20 behavioural and seven
technical competencies required of financial planners.
If unable to meet the competency required by a client’s
specific needs and circumstances, an adviser should not
accept the engagement.
Values Espoused by the Code – Competence
Ethical Theory
Involves a duty to keep up to date with developments in
financial planning and undertake relevant professional
development.
Values Espoused by the Code – Competence
Ethical Theory
Honesty
Honesty is a value closely linked to trustworthiness.
Requires advisers to conduct themselves with integrity in their
professional dealings; this could be with clients, peers,
regulators, licensees, colleagues, supervisors, managers.
Keeping client documentation and other information
confidential is also an aspect of honesty.
Values Espoused by the Code – Honesty
Acting to demonstrate, realise and promote the value of honesty requires that you
conduct yourself with complete integrity in all your professional dealings with your
clients and with all others that you engage with in a professional setting. It requires
transparency, frankness and fairness to each of your clients, even where this may
cause you personal detriment. (FASEA, Code of Ethics, 2021)
Ethical Theory
Fairness
The word ‘fair’ is defined in the Oxford Dictionary as ‘1. treating
people equally; 2. just or appropriate in the circumstances’.
In a financial advising context, fairness involves an objective
assessment of what advisers are able to offer to their clients.
Closely related to the values of ‘competence’ and ‘honesty’.
To demonstrate the value of ‘fairness’, an adviser first needs to
understand the needs of their client - through meetings and
thoroughly investigating client goals and circumstances,
checking documentation and making relevant enquiries.
Values Espoused by the Code – Fairness
Ethical Theory
Values Espoused by the Code – Fairness
Ethical Theory
Diligence
Diligence brings together many of the behavioural and
technical skills.
Involves honesty, listening, dependability, and reliability as
well as care and empathy for the client.
Also involves time management, written and verbal
communication, and technical skills.
Values Espoused by the Code – Diligence
Ethical Theory
An adviser must have the appropriate resources at hand to
enable them to demonstrate diligence (e.g. time; relevant
qualifications, professional development; behavioural and
technical expertise; technology; financial viability of the firm;
documentation, support staff).
Diligence requires that you exercise due care and skill in the way you:
FASEA Code of Ethics Guidance
• 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.
Ethical Theory
Using the Code to Guide Behaviour
The Code of Ethics is compulsory for all financial advisers.
It imposes ethical duties on each individual adviser that go
above the requirements of the law.
A code of ethics is on its own is unsuccessful, as culture of
trust must also be built through the behaviour exemplified in
each individual member of the profession.
Ultimate responsibility for applying the values and standards of
the code falls on individual advisers.
Using the Code to Guide Behaviour
Ethical Theory
Advisers apply their professional judgment in determining the correct course of
action to take.
The Code requires the five values that underpin it to be applied to ensure advice is
always provided in the best interests of the client.
Each adviser needs to give an account of the ethical reasoning that has informed
their behaviour.
Using the Code to Guide Behaviour
Ethical Theory
Who must legally abide by the Code?
Financial services licensees;
Authorised representatives;
Employees and directors of a financial services licensee;
Employees and directors of a related body corporate of a
financial services licensee;
Anyone listed on ASIC’s FAR as authorised to provide
personal advice to retail clients, as the licensee or on behalf of
the licensee, in relation to relevant financial products;
Provisional relevant providers who are undertaking work and
training in their professional year; and
Supervisors of a provisional relevant provider.
Who is legally required to abide by the Code?
Ethical Theory
Monitoring adherence to the Code
Failure to comply with the Code of Ethics must be notified
under s 922HD of the Corporations Act 2001 (Cth).
A new disciplinary system and single disciplinary body within
ASIC’s existing Financial Services and Credit Panel (FSCP)
will be established in early 2022 to monitor adherence to the
Code.
ASIC has been taking enforcement action where it received
breach reports and used existing channels for lodging reports
of alleged misconduct about an adviser and/or licensee who
had not complied with the Code.
Monitoring adherence to the Code
Ethical Theory
“In circumstances where the risk required exceeds the client’s
risk profile, the adviser will need to counsel the client to take
one, more or all of the following steps:
invest more funds
take more risk than indicated by the client’s profile
modify future goals.
Where the risk required is less than the client’s risk profile, the
adviser should inform the client they can achieve their goals
by taking on less risk. Armed with this information, the client
can make an informed investment decision.”
(AFCA Determination 510284 (2019))
Ethical Theory
Summary
A code of ethics can assist in building public trust in financial
advice by promoting higher standards of behaviour and
professionalism.
It is up to each individual adviser to uphold the values and
standards in the Code of Ethics.
Compliance with the Code will go a long way in meeting the
expectations of society and ensuring that clients receive
financial advice that provides value for money and is in their
best interests.
Application of higher standards of ethical behaviour, such as
those required by the Code will assist in recognising financial
planning as a true profession.
Summary
Appendix
FASEA Code of Ethics
Guidance
Source: FASEA Code of Ethics Guidance Oct 2020
The five values
The Code requires financial advisers to act in a way that demonstrates, realises and promotes the
following five values:
1. Trustworthiness;
2. Competence;
3. Honesty;
4. Fairness; and
5. Diligence.
The Code stipulates that these values are paramount and that all provisions of the Code (which
includes the Standards) must be read and applied in a way that promotes the values.
Trustworthiness
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.
Competence
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. Although 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 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.
Honesty
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 with in 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. Honesty also requires you to respect the rights
(including personal and property rights) of others – especially when acting as their agent or
managing their assets.
Fairness
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?
Diligence
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.
Diligence 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.
The 12 Standards
The Code contains twelve standards which operate as a whole to support you in demonstrating
the Code’s values. The standards are grouped under four ethical competencies:
• Ethical Behaviour (Standards 1-3).
• Client Care (Standards 4-6).
• Quality Process (Standards 7-9).
• Professional Commitment (Standards 10-12).
The standards contain ethical principles. You will need to exercise your professional judgement
against the principles contained in the standards when assessing whether you are prioritising the
interests of your client in each particular circumstance. The standards are not a compliance
checklist.
Standard 1
You must act in accordance with all applicable laws, including this Code, and not try to avoid or
circumvent their intent.
Intent
The intent of Standard 1 is to require advisers to not only comply with the letter of the law in
meeting their legal obligations (including the Code of Ethics), but also to comply with the intent of
those laws and not seek to avoid or circumvent them. This is a minimum ethical obligation.
Standard 2
You must act with integrity and in the best interests of each of your clients.
Intent
The intent of Standard 2 is to ensure that financial advisers act with integrity and in the best
interests of each client.
Standard 3
You must not advise, refer or act in any other manner where you have a conflict of interest or duty.
Intent
The intent of Standard 3 is that advisers must not advise, refer or act in any other manner where
they have a conflict of interest or duty that is contrary to the client’s best interests.
Standard 4
You 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 this Code
commences.
Intent
The intent of Standard 4 is to ensure the adviser takes reasonable steps to confirm that clients are
well informed and freely consent to personal financial advice before they act. Advisers should
confirm that the client freely consents to the ongoing service offering, fees payable and payments
for any additional services offered.
Standard 5
All advice and financial product recommendations that you give to a client must be in the best
interests of the client and appropriate to the client’s individual circumstances.
You must be satisfied that the client understands your advice, and the benefits, costs and risks of
the financial products that you recommend, and you must have reasonable grounds to be
satisfied.
Intent
The intent of Standard 5 is to emphasise the need for advisers to ensure that advice and product
recommendations are appropriate to each client’s individual circumstances. Advisers have a duty
to be aware of available products in the market and it may be necessary for product
recommendations to go beyond what is currently on a Licensees’ approved product list (APL) if
the adviser is aware of a product that would be in the client’s best interests.
Standard 6
You must take into account the broad effects arising from the client acting on your advice and
actively consider the client’s broader, long-term interests and likely circumstances.
Intent
The intent of Standard 6 is to ensure that, before giving advice, advisers have determined whether
or not the advice is consistent with the client’s broader long term interests and likely
circumstances.
Standard 7
The client must give free, prior and informed consent to all benefits you and your 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, you may not receive any benefits,
in connection with acting for a client, that derive from a third party other than your principal.
You must satisfy yourself that any fees and charges that the client must pay to you or your
principal, and any benefits that you or your principal receive, in connection with acting for the
client are fair and reasonable, and represent value for money for the client.
Intent
The intent of Standard 7 is to ensure that clients freely give informed consent to benefits the
adviser will receive, and that this consent is obtained before they receive advice. Benefits may
cover more than fees and charges.
Standard 7 is closely linked to Standard 3 and 4.
Standard 8
You must ensure that your records of clients, including former clients, are kept in a form that is
complete and accurate.
Intent
The intent of Standard 8 is to ensure that financial advisers keep complete and accurate records of
advice and services provided to their clients and meet legislative requirements relating to storage
of records.
Standard 9
All advice you give, and all products you recommend, to a client must be offered in good faith and
with competence and be neither misleading nor deceptive.
Intent
The intent of Standard 9 is to require that all financial product advice, and all financial products,
offered to a client be offered in good faith by an adviser who has the knowledge and skill
(competency) to provide the advice.
Standard 10
You must develop, maintain and apply a high level of relevant knowledge and skills.
Intent
The intent of Standard 10 is to ensure that financial advisers have and maintain an appropriate
level of relevant knowledge and skills to provide competent advice in the best interests of their
clients.
Standard 11
You must cooperate with ASIC and monitoring bodies in any investigation of a breach or potential
breach of this Code.
Intent
The intent of standard 11 is to place personal responsibility onto financial advisers to uphold the
ethical values of the Code by proactively cooperating with ASIC and monitoring bodies in any
investigation of a breach or potential breach of this Code.
Standard 12
Individually and in cooperation with peers, you must uphold and promote the ethical
standards of the profession and hold each other accountable for the protection of the public
interest.
Intent
The intent of standard 12 is to ensure financial advisers both individually and in cooperation
with their peers not only meet the values and standards of the Code but that they promote
meeting and maintaining those values and standards in their dealings with the profession
and the public.
FINS3637: Wealth Management Advice & Ethics
Lecture Eight
Dealing with Ethical
Dilemma
Code of Ethics
Lecturer: Nidal Danoun
n.danoun@unsw.edu.au
References and Readings
• Ethics and professional Practice in Financial Planning 1st Edition – Cull et all, LexisNexis
• Everyday Ethics for Financial Advisers - The Ethics Centre
• Financial Planning in Australia latest Edition- Taylor, LexisNexis
• Thomson Financial Planning Handbook
• Financial Planning 2nd edition – Mckeown et all,Wiley
• Corporations Act (Chapter 7)
Ethical Decision Making Framework (EDMF) - CFA
.
Dealing with Ethical Dilemma
Common Issues to consider
• Complexity
• Prepare for difficult decisions to be made
• Ethical thinking
• Beware of biases
• Having a process → EDMF
• Consistency of outcomes
• Act and reflect
• Ongoing learning → Not a set and forget
Ethical Theory
Financial Advisers Code of Ethics
Code of Ethics
Ethical Theory
Introduction
The Financial Planners and Advisers Code of Ethics (“the
Code”) applies to all registered financial advisers in Australia.
The Code is a legislative instrument and is enforceable by law.
A legislated code of ethics is the first of its kind in Australia
and internationally.
Most codes of ethics are written and enforced by professional
industry bodies, but this code is an exception.
12 ethical standards form the Code and the associated
explanatory statement and guidelines.
Introduction
Ethical Theory
Background
The Code was developed to restore trust in Australia’s
financial system and to build a stronger economy.
The Code was formed in response to financial providers and
services collapses in Australia during the global financial
crisis, and the later public scandals of major banks in Australia
involving financial advice.
Background
Ethical Theory
The Code was introduced to the Corporations Act 2001 (Cth) in March 2017
through the Corporations Amendment (Professional Standards of Financial
Advisers) Act 2017 (Cth) to raise the education, training, and ethical standards of
financial advisers providing personal advice to retail clients on financial products.
The Code applies to all financial advisers on the FAR and all provisional advisers.
Existing and new financial advisers must complete a course on ethics and
professionalism, which covers content on the Code of Ethics.
Background
Ethical Theory
The Financial Adviser Standards and Ethics Authority
The Financial Adviser Standards and Ethics Authority (FASEA) was
declared as the standards body under s 921U of the Corporations
Act 2001 (Cth) and given responsibility for making a code of ethics.
FASEA made the Code of Ethics by legislative instrument to
commence from 1 January 2020.
FASEA is a Commonwealth company limited by guarantee.
It was perceived that a Commonwealth body would be more likely to
restore confidence in financial services than an industry body.
Although FASEA is a Commonwealth company, its standard setting
function is independent of government.
The Financial Adviser Standards and Ethics Authority (FASEA)
Ethical Theory
FASEA Funding Model
FASEA was to be funded by industry.
FASEA was initially funded by a levy imposed on the major
banks.
Industry funding of $3.9 million annually was to be provided,
based on adviser numbers.
Funding covers the costs of implementing the professional
standards in the Corporations Act 2001 (Cth).
The Financial Adviser Standards and Ethics Authority (FASEA)
Ethical Theory
Funding agreement expired on 30 June 2021.
The government is now disbanding FASEA and transferring its powers into
Treasury and ASIC’s Financial Services and Credit Panel from 1 January 2022.
A new funding model is yet to be confirmed.
Ethical Theory
Main themes of the Code
Principles-based model that promotes client best interests and
engages each individual financial adviser with their duties to
both clients and broader society.
The Code of Ethics focuses on five main themes:
1. Acting in the best interests of clients;
2. Avoiding all conflicts of interest;
3. Obtaining informed consent of clients to provide advice, and
pay associated fees;
4. Ensuring clients understand the advice they receive; and
5. Maintaining educational requirements to ensure a high level
of knowledge and skills.
What is in the Financial Planners and Advisers Code of Ethics?
Ethical Theory
Overarching domains
The 12 standards that form the Code of Ethics are further split
into four overarching domains containing three standards
each, as follows:
1. Ethical behaviour – Standards 1, 2 and 3;
2. Client care – Standards 4, 5 and 6;
3. Quality process – Standards 7, 8 and 9; and
4. Professional commitment – Standards 10, 11 and 12.
What is in the Financial Planners and Advisers Code of Ethics?
Ethical Theory
Ethical behaviour
There is a reciprocal relationship between ethical behaviour
and the value of trust, in that ethical behaviour influences
perceptions of trust and trust influences perceptions of ethical
behaviour.
The 12 Standards of the Code of Ethics – Ethical Behaviour
Currently
under
review
Ethical Theory
Client Care
Relates to an adviser knowing their individual clients’
circumstances and ensuring that all recommendations are
appropriate to these circumstances and in the best interests of
their clients.
Values of honesty and trustworthiness underpin these
standards & values of competence, diligence, and fairness
apply specifically.
The 12 Standards of the Code of Ethics – Client Care
Ethical Theory
The 12 Standards of the Code of Ethics – Client Care
Ethical Theory
Quality Process
Adviser must take the necessary steps to ensure the process of delivering advice is
in accordance with the five values of the Code.
An adviser may utilise specific systems and procedures to ensure ethical behaviour
is demonstrated in the advice process, e.g. file notes, checklists, agreements from
clients, video or audio recordings of meetings.
The 12 Standards of the Code of Ethics – Quality Process
Ethical Theory
Standard 7
The client must give free, prior and informed consent to all benefits you and your 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, you may not receive any
benefits, in connection with acting for a client, that derive from a third party other than your
principal.
You must satisfy yourself that any fees and charges that the client must pay to you or your
principal, and any benefits that you or your principal receive, in connection with acting for the
client are fair and reasonable and represent value for money for the client.
Standard 8
You must ensure that your records of clients, including former clients, are kept in a form that
is complete and accurate.
The 12 Standards of the Code of Ethics – Quality Process
Ethical Theory
Professional Commitment
These standards refer to developing, maintaining, and
applying a high level of knowledge and skills relevant to the
provision of financial advice; cooperating with any legal
investigations into any potential breaches of the Code; and
upholding the ethical values and standards outlined in the
Code for the protection of broader society.
The 12 Standards of the Code of Ethics – Professional Commitment
Ethical Theory
The 12 Standards of the Code of Ethics – Professional Commitment
Ethical Theory
Values
The key principles underlying the Code are supported by five
values espoused in the Code.
A relevant provider must always act to realise and promote the
following values:
Values Espoused by the Code
Trustworthiness Competence Honesty
Fairness Diligence
Ethical Theory
Trustworthiness
“Trust is the expectation that the adviser (‘trustee’) can be
relied on to act honestly, competently and in the best interests
of the client (‘trustor’) and thereby reduce the trustor’s risks of
loss.” (Cull, 2015).
The definition of trust includes the values of competence and
honesty — both of which are included separately in the Code
of Ethics.
Values Espoused by the Code – Trustworthiness
Ethical Theory
Competence
Competence, as indicated by qualifications, behavioural skills,
and technical skills, is vital in financial planning.
The ‘Birkett report’ (1996) outlines 20 behavioural and seven
technical competencies required of financial planners.
If unable to meet the competency required by a client’s
specific needs and circumstances, an adviser should not
accept the engagement.
Values Espoused by the Code – Competence
Ethical Theory
Involves a duty to keep up to date with developments in
financial planning and undertake relevant professional
development.
Values Espoused by the Code – Competence
Ethical Theory
Honesty
Honesty is a value closely linked to trustworthiness.
Requires advisers to conduct themselves with integrity in their
professional dealings; this could be with clients, peers,
regulators, licensees, colleagues, supervisors, managers.
Keeping client documentation and other information
confidential is also an aspect of honesty.
Values Espoused by the Code – Honesty
Acting to demonstrate, realise and promote the value of honesty requires that you
conduct yourself with complete integrity in all your professional dealings with your
clients and with all others that you engage with in a professional setting. It requires
transparency, frankness and fairness to each of your clients, even where this may
cause you personal detriment. (FASEA, Code of Ethics, 2021)
Ethical Theory
Fairness
The word ‘fair’ is defined in the Oxford Dictionary as ‘1. treating
people equally; 2. just or appropriate in the circumstances’.
In a financial advising context, fairness involves an objective
assessment of what advisers are able to offer to their clients.
Closely related to the values of ‘competence’ and ‘honesty’.
To demonstrate the value of ‘fairness’, an adviser first needs to
understand the needs of their client - through meetings and
thoroughly investigating client goals and circumstances,
checking documentation and making relevant enquiries.
Values Espoused by the Code – Fairness
Ethical Theory
Values Espoused by the Code – Fairness
Ethical Theory
Diligence
Diligence brings together many of the behavioural and
technical skills.
Involves honesty, listening, dependability, and reliability as
well as care and empathy for the client.
Also involves time management, written and verbal
communication, and technical skills.
Values Espoused by the Code – Diligence
Ethical Theory
An adviser must have the appropriate resources at hand to
enable them to demonstrate diligence (e.g. time; relevant
qualifications, professional development; behavioural and
technical expertise; technology; financial viability of the firm;
documentation, support staff).
Diligence requires that you exercise due care and skill in the way you:
FASEA Code of Ethics Guidance
• 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.
Ethical Theory
Using the Code to Guide Behaviour
The Code of Ethics is compulsory for all financial advisers.
It imposes ethical duties on each individual adviser that go
above the requirements of the law.
A code of ethics is on its own is unsuccessful, as culture of
trust must also be built through the behaviour exemplified in
each individual member of the profession.
Ultimate responsibility for applying the values and standards of
the code falls on individual advisers.
Using the Code to Guide Behaviour
Ethical Theory
Advisers apply their professional judgment in determining the correct course of
action to take.
The Code requires the five values that underpin it to be applied to ensure advice is
always provided in the best interests of the client.
Each adviser needs to give an account of the ethical reasoning that has informed
their behaviour.
Using the Code to Guide Behaviour
Ethical Theory
Who must legally abide by the Code?
Financial services licensees;
Authorised representatives;
Employees and directors of a financial services licensee;
Employees and directors of a related body corporate of a
financial services licensee;
Anyone listed on ASIC’s FAR as authorised to provide
personal advice to retail clients, as the licensee or on behalf of
the licensee, in relation to relevant financial products;
Provisional relevant providers who are undertaking work and
training in their professional year; and
Supervisors of a provisional relevant provider.
Who is legally required to abide by the Code?
Ethical Theory
Monitoring adherence to the Code
Failure to comply with the Code of Ethics must be notified
under s 922HD of the Corporations Act 2001 (Cth).
A new disciplinary system and single disciplinary body within
ASIC’s existing Financial Services and Credit Panel (FSCP)
will be established in early 2022 to monitor adherence to the
Code.
ASIC has been taking enforcement action where it received
breach reports and used existing channels for lodging reports
of alleged misconduct about an adviser and/or licensee who
had not complied with the Code.
Monitoring adherence to the Code
Ethical Theory
“In circumstances where the risk required exceeds the client’s
risk profile, the adviser will need to counsel the client to take
one, more or all of the following steps:
invest more funds
take more risk than indicated by the client’s profile
modify future goals.
Where the risk required is less than the client’s risk profile, the
adviser should inform the client they can achieve their goals
by taking on less risk. Armed with this information, the client
can make an informed investment decision.”
(AFCA Determination 510284 (2019))
Ethical Theory
Summary
A code of ethics can assist in building public trust in financial
advice by promoting higher standards of behaviour and
professionalism.
It is up to each individual adviser to uphold the values and
standards in the Code of Ethics.
Compliance with the Code will go a long way in meeting the
expectations of society and ensuring that clients receive
financial advice that provides value for money and is in their
best interests.
Application of higher standards of ethical behaviour, such as
those required by the Code will assist in recognising financial
planning as a true profession.
Summary
Appendix
FASEA Code of Ethics
Guidance
Source: FASEA Code of Ethics Guidance Oct 2020
The five values
The Code requires financial advisers to act in a way that demonstrates, realises and promotes the
following five values:
1. Trustworthiness;
2. Competence;
3. Honesty;
4. Fairness; and
5. Diligence.
The Code stipulates that these values are paramount and that all provisions of the Code (which
includes the Standards) must be read and applied in a way that promotes the values.
Trustworthiness
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.
Competence
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. Although 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 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.
Honesty
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 with in 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. Honesty also requires you to respect the rights
(including personal and property rights) of others – especially when acting as their agent or
managing their assets.
Fairness
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?
Diligence
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.
Diligence 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.
The 12 Standards
The Code contains twelve standards which operate as a whole to support you in demonstrating
the Code’s values. The standards are grouped under four ethical competencies:
• Ethical Behaviour (Standards 1-3).
• Client Care (Standards 4-6).
• Quality Process (Standards 7-9).
• Professional Commitment (Standards 10-12).
The standards contain ethical principles. You will need to exercise your professional judgement
against the principles contained in the standards when assessing whether you are prioritising the
interests of your client in each particular circumstance. The standards are not a compliance
checklist.
Standard 1
You must act in accordance with all applicable laws, including this Code, and not try to avoid or
circumvent their intent.
Intent
The intent of Standard 1 is to require advisers to not only comply with the letter of the law in
meeting their legal obligations (including the Code of Ethics), but also to comply with the intent of
those laws and not seek to avoid or circumvent them. This is a minimum ethical obligation.
Standard 2
You must act with integrity and in the best interests of each of your clients.
Intent
The intent of Standard 2 is to ensure that financial advisers act with integrity and in the best
interests of each client.
Standard 3
You must not advise, refer or act in any other manner where you have a conflict of interest or duty.
Intent
The intent of Standard 3 is that advisers must not advise, refer or act in any other manner where
they have a conflict of interest or duty that is contrary to the client’s best interests.
Standard 4
You 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 this Code
commences.
Intent
The intent of Standard 4 is to ensure the adviser takes reasonable steps to confirm that clients are
well informed and freely consent to personal financial advice before they act. Advisers should
confirm that the client freely consents to the ongoing service offering, fees payable and payments
for any additional services offered.
Standard 5
All advice and financial product recommendations that you give to a client must be in the best
interests of the client and appropriate to the client’s individual circumstances.
You must be satisfied that the client understands your advice, and the benefits, costs and risks of
the financial products that you recommend, and you must have reasonable grounds to be
satisfied.
Intent
The intent of Standard 5 is to emphasise the need for advisers to ensure that advice and product
recommendations are appropriate to each client’s individual circumstances. Advisers have a duty
to be aware of available products in the market and it may be necessary for product
recommendations to go beyond what is currently on a Licensees’ approved product list (APL) if
the adviser is aware of a product that would be in the client’s best interests.
Standard 6
You must take into account the broad effects arising from the client acting on your advice and
actively consider the client’s broader, long-term interests and likely circumstances.
Intent
The intent of Standard 6 is to ensure that, before giving advice, advisers have determined whether
or not the advice is consistent with the client’s broader long term interests and likely
circumstances.
Standard 7
The client must give free, prior and informed consent to all benefits you and your 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, you may not receive any benefits,
in connection with acting for a client, that derive from a third party other than your principal.
You must satisfy yourself that any fees and charges that the client must pay to you or your
principal, and any benefits that you or your principal receive, in connection with acting for the
client are fair and reasonable, and represent value for money for the client.
Intent
The intent of Standard 7 is to ensure that clients freely give informed consent to benefits the
adviser will receive, and that this consent is obtained before they receive advice. Benefits may
cover more than fees and charges.
Standard 7 is closely linked to Standard 3 and 4.
Standard 8
You must ensure that your records of clients, including former clients, are kept in a form that is
complete and accurate.
Intent
The intent of Standard 8 is to ensure that financial advisers keep complete and accurate records of
advice and services provided to their clients and meet legislative requirements relating to storage
of records.
Standard 9
All advice you give, and all products you recommend, to a client must be offered in good faith and
with competence and be neither misleading nor deceptive.
Intent
The intent of Standard 9 is to require that all financial product advice, and all financial products,
offered to a client be offered in good faith by an adviser who has the knowledge and skill
(competency) to provide the advice.
Standard 10
You must develop, maintain and apply a high level of relevant knowledge and skills.
Intent
The intent of Standard 10 is to ensure that financial advisers have and maintain an appropriate
level of relevant knowledge and skills to provide competent advice in the best interests of their
clients.
Standard 11
You must cooperate with ASIC and monitoring bodies in any investigation of a breach or potential
breach of this Code.
Intent
The intent of standard 11 is to place personal responsibility onto financial advisers to uphold the
ethical values of the Code by proactively cooperating with ASIC and monitoring bodies in any
investigation of a breach or potential breach of this Code.
Standard 12
Individually and in cooperation with peers, you must uphold and promote the ethical
standards of the profession and hold each other accountable for the protection of the public
interest.
Intent
The intent of standard 12 is to ensure financial advisers both individually and in cooperation
with their peers not only meet the values and standards of the Code but that they promote
meeting and maintaining those values and standards in their dealings with the profession
and the public.
