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As Fred Dagg said: We don’t know how lucky we are

If you think the new Code of Conduct for financial advisers in New Zealand is bad, go and have a read of the Australian version.

Monday, November 4th 2019, 10:17AM 1 Comment

If you dare to delve into the Financial Planners and Advisers Code of Ethics 2019 Guidance published by FASEA1 then you will have plenty to make you thoughtful about how it compares to New Zealand's equivalent – and also how much the weight of interpretation can play in a principles-based Code. Some examples are quite good – but some are simply baffling, even scary.

For the record, I like the example on standard one (page 10) which illustrates how an adviser could push a client to an execution-only engagement so that they can avoid a disclosure of a conflict of interest, that’s clearly not okay. There are other good examples, this article isn’t about them.

Code standard two requires you to act with integrity and in the best interests of each of your clients. Under this principle the guidance ranges from the fussy to the astonishing.

At the mild end of the spectrum, take this:

“You must treat all clients fairly, as between themselves. You should provide professional services to all clients, managing your business so that each client has a fair share of your attention, skills and time."

But what constitutes a fair share of your attention, skills and time? Does a client with simple needs get you for more time than they need while a client with complex ones does not? I doubt it. Why not just leave the whole matter at adequately meeting the agreed scope of service?

Of course, to meet the "best interests" duty you also need information:

“This means that you will need to work out, and, if necessary, help the client to work out what the client’s objectives, financial situation, needs, interests (including long-term interests), current circumstances and likely future circumstances are.”

Which is fair enough, but now it gets weird:

“To comply with the ethical duty, it will not be enough for you to limit your inquiries to the information provided by the client; you will need to inquire more widely into the client’s circumstances.” 

What does this mean? Do we ask the neighbours? Ransack their rubbish bins? Or hire a private investigator? The example gives a situation where the financial planner is “aware that Gavin received previous treatment for mental health issues when he was a younger Registrar …” We are not told how the planner is aware of this.

Perhaps it was party gossip? Are we to base financial plans on uncorroborated information? What if we raise the information … “Bob tells me you’ve had this medical problem” and they deny it? Which information is more reliable? If you doubt their estimate of value for the family home, do you get another valuation?

No example is given of the extent of inquiries necessary to safely give advice. The only examples on offer show the planner failing to get enough information. But it gets even harder:

“You are not relieved of the ethical duty merely because the client does not provide enough information, even when asked.”

You ask the client, and they don’t tell you. Perhaps they were too embarrassed to tell you the truth, or were too proud, or didn’t understand. I get that those things happen, but when can it ever be safe to offer financial advice under such circumstances?

I cannot relate to you every example, but as I read the document I reflected on the recent sharp fall in the number of financial advisers in Australia and the dire warnings of some planners that remain in practice of worse to come. This document seems designed to scare the maximum number of advisers from the profession.

Long may we avoid such stuff here.


1 Financial Adviser Standards and Ethics Authority published the document, and I recognise their copyright, and provide the link here:

Tags: Russell Hutchinson

« What to do, what to do …Imagine being forced to give bad advice »

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Comments from our readers

On 8 November 2019 at 6:03 am Tony Vidler said:
I could not agree more. The Australian regulatory framework is a basket-case and they have set some impossible standards...literally impossible to achieve.

NZ advisers should appreciate the wisdom of the Code developed here, together with the regulatory approach which encourages innovation in process and practice development, without the heavily prescriptive political nonsense being imposed in overseas jurisdictions.

Indeed; we don't know how lucky we are.

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