In the wake of the Financial Services Royal Commission, there’s been wide focus on the professional conduct and standards of financial planners and the organisations they represent.
Greed was present in all the scandals played out before Kenneth Hayne and his royal commission. Charging the dead, billing customers for no service and taking advantage of the most vulnerable and the unemployed. These were all common factors within the banking sector. Superannuation funds had a much better outcome. But their financial planners are, however, being questioned.
In January this year, a new regime came into play to raise the education, training and ethical standards of planners and ensure clients’ interests are protected. The standards are governed by the Financial Adviser Standards and Ethics Authority (FASEA).
While the industry has focused on the educational standards, it is the ethical standards, and the regimes to enforce them, that has the potential to revolutionise financial advice. These will impact planners, as well as licensees and funds.
Meeting the education requirements will pose significant challenges, but it is unlikely that more education will impact the nature and quality of advice to the same extent as the new ethical standards.
The ethical standards specifically target individual planners, holding them to a best interest duty free of carve outs and safe harbours. They’re designed to ensure planners advocate for their clients and not for product manufacturers.
The reforms provide a platform to address the concerns raised through the Royal Commission and should be broadly welcomed by superannuation trustees. But, while their impact will be more keenly felt by those who continue to see advice as a means of distribution, they will also have implications for those who offer advice as a service.
Moreover, the reforms bring another layer of regulation in an already complex regulatory environment, with significant overlap in responsibilities between ASIC, licensees and FASEA.
The FASEA standards are being phased in between now and 2024 across six key areas. The code of ethics applies from 1 January, 2020, other standards address education and professional development.
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