Introduction
FASEA code of ethics discusses about various codes of ethics that a financial adviser should always follow and adhere to while consulting a client. The two most important codes or standards for this assignment are standard 2 and standard 3. Standard 2 talks about the act of integrity. According to this standard an adviser should always act in the best interest of the client. Standard 3 is about ensuring that there is zero conflict of interest while advising the client. It allows the adviser to consult his peer professionals in case of any conflict or confusion. The study aims at analysing some past evidences and case studies to synthesize new knowledge
Evidences
The case studies below covers the two standards of FASEA code of ethics, best interest duty and conflict of interest.
According to Bruhn and Miller an individual faces a variety of financial and non-financial risks in his entire lifetime and might look forward to some financial advice and guidance. Regulatory frameworks and proposals have defined some centred codes that defines a good or poor quality advice (Bruhn & Miller, 2014). The code defines that the advice should be in the best interest of the client and the adviser should follow ethical steps. This article aimed at highlighting features that were considered as examples of poor quality advice and needs to be eliminated (Bruhn & Miller, 2014). The study uses primary research such as interviews and surveys with the financial advisers and investors in order to offer bounds on what represents the quality of an advice and what factors are to be considered at the time of advising or suggestions to the client.
The study starts with describing various financial provisions in Australia such as a system of pillars consisting of 3 pillars one, age pension followed by the second pillar defining retirement savings and the third pillar determining the private savings (Bruhn & Miller, 2014). The provision discusses about the complexity faces and the choices that are made both by the advisers and the investors. According to ASIC, financial literacy can be defined as the act of making informed judgements in order to take effective management decisions. The paper then discusses about the two types of advice such as professional advice and non-professional advice and their roles. It focuses on the consequences that will arise from the advice, determining the long term implications and outcomes of the decision and evaluating the risk are the two factors that defines the quality of the advice to be good or bad (Bruhn & Miller, 2014). In defining the best interest duty the adviser should focus on three major factors one, understanding the relevant personal circumstances of the client, Second, focus on considering if the advice is reasonable in all the circumstances of the client and third factor is to ensure that the advice is appropriate to the client given all the circumstances, which means that the adviser should know their client better in order to produce a quality advice.
The study concludes that in order to advise in the best interest of the client, the necessity for a quality finance is required although the value of finance is tough to asses and generates significant challenges. The study analyses the case of Storm’s collapse and suggests some major lessons to be overviewed depending on certain specific conditions. The first lesson is to consider the risk level tolerance of the client. Next, it focuses on seeking clarity with the client regarding any underlying assumptions made by the adviser (Bruhn & Miller, 2014). The adviser should take suggestions from professional peers if certain strategies are not obvious to both the adviser as well as the client.
The Hayne Royal Commission and Financial Sector Misbehaviour– Lasting Change or Temporary Fix?
Kevin Davis of Melbourne University, Australia discusses about the Hayne Royal commission case that reported financial sector misbehaviour in the year 2019. The paper determines and describes the certain types of misbehaviour and recommends possible solutions to control those misbehaviours. However, due to limited time and resources the study fails to investigate and provide long term solutions to the complex issues and the financial sector misconduct in Australia and globally. The study aims at arguing various benefits that have emerged from the royal commission and will be short lived as the misconduct is likely to resurface (Davis, 2019). The Royal Commission (RC) misconduct in February, 2019 was reported in banking, financial services industry and superannuation. The proceedings highlighted various cases of financial misconduct and identified the wrongdoers and focused don altering various business models and conduct in the Australian Financial Institutions (Davis, 2019). The Royal Commission limited its focus resulting in a flip side misconduct and extremely poor behaviour harming the retail investors and financial consumers. The paper made some relevant recommendations to the royal commission’s misconduct to reduce the overall risk. The finance sector is broad, large and profitable sector and the misconduct by the royal commission affected the future growth and profitability in its sector. This paper briefly discusses the background of the royal commission followed by the standards determined by the community and their expectations and competitions. Next, the study explains the process of misconduct by the royal commission and identifies the problems that resulted from the misconduct and their perceived causes (Davis, 2019). It discusses the various underlying norms that describes a good behaviour such as obey the laws and regulations, avoid misleading and act fairly in all circumstances, providing services that are in the best interest of the client with proper care and skills.
The study focuses on 76 recommendations in the four primary sections, which were banking, superannuation, insurance and financial advice. It discusses the poor behaviour that the large financial institution proposed by treating their clients with harsh criticism and comments. The royal commission acknowledges the recommendations made and addresses to seek the key issues. It simplified the laws and removed exceptions from the regulations and removed the conflict of interests. The Commission improved the implementation and compliance with the regulations with significant improvement in the cultural and corporate governance practices resulting in increasing the protection of their financial consumers and clients. This article discusses the corporate governance practices of the Royal Commission and the structural changes that are to be made in the financial firm. The study concludes that the Royal Commission is best viewed and took small steps in order to overcome the misconduct practices and poor behaviour to their clients and financial customers (Davis, 2019). They incorporated various sensible changes in their laws and regulations practices. In the absence of these practice however they were not feasible given the Royal commission’s briefs and practices.
Best Interest Duties of Financial Advisers ― More Law, More Confusion
David G Millhouse in his paper of Best Interest Duties of Financial Advisers discusses the basic concept and meaning of the term best interest and how it is used and misunderstood differently in different domain such as law, media, legislature and financial regulations. In case of investors, best interest of the client is misunderstood and confused with concepts of loyalty to their client and their economic interests (Wilson & Lavery, 2019). This differentiations in the interpretation of the term influences the relationship of the advisers and the process they follow at the time of consulting. The Australian government determines and defines various codes of ethics commonly known as the FASEA code of ethics which is stated to be complex and uncertain and often lags a comparative jurisdictions (Wilson & Lavery, 2019). The author of the study states the various complications that the laws and regulations have and how it can be simplified in order to resolve uncertainty and misinterpretations in the best interest of the client.
The study starts with discussing the origin of the best interest duty and how the heritage of the interest lies in equity to provide undivided loyalty and merely avoid harming them. Followed by a detailed analysis of whether best interest of duty is a fiduciary duty. Fiduciary, according to the article, can be defined as a status based (directors, agents, trustees and many more) or a contractor based (such as financial planners, general laws) concept, which should be conducted with no profit consent rules and include a duty of care (Wilson & Lavery, 2019). It then discusses the best interest of duty in investment strategy, which is compromised by lack of developments of laws and regulations in this domain. This results in affecting the decisions made on the inward and outward capital flows and creates jurisdictional risks. The concept of best interest of duty in the investment strategy lacks definition and constitutes a defence in its due diligence. The next focus is on the best interest of duty in financial advice. The Australian government defines certain code of ethics as Financial Adviser Standards and Ethics Authority. Each financial advisory firms are supposed to undertake and follow these code of ethics (Wilson & Lavery, 2019). According to the research, succeeding testing in the year 2017 provided certain proofs, where 100% of the financial advisers in the model trusted the statutory harmless harbour provision. 75% of which claimed a reliance on it, which did not obey the constitutional best interest duty with the client leaving 10% of their client in worse financial positions (Wilson & Lavery, 2019). This damned evidence of the counting of general law fiduciary obligations arising from the politicisation of the debate and sought to be cured by the FASEA Code of Ethics.
The future board of the FASEA code of ethics will be required to come up with controls and grips to overcome the legal uncertainty that the codes have created. According to David pollard, short term of best interest is not efficient and should be considered revising. The paper concludes that the dangers in the code of ethics is becoming an end in itself rather than a model to benefit the clients, financial customers and investors.
Conceptualising Financial Advice in Australia: The Impact of Business Models and External Stakeholders on Client’s Best Interest Practice
The study states that in examining the financial adviser sectors in Australia, it is crucial to determine when and how financial advice and codes should be applied in the best interest of the clients and the financial customers. It focuses on formulating and discussing the various models differentiating the diverse types of financial advice and the best interest practices in their relationships. The paper aims at revealing various business models to prioritise the financial institution interest and encourage the best interest practices. This article states various contributions which are as follows: first is to develop a general model to determine the best interest of the financial advice and prioritise the extent to client’s best interest (Wilson & Lavery, 2019). This model aims at determining the different forms of forms of financial advice. The second addresses the understanding of the contextual environment and surrounding that influence the financial advisers. It is determined with the help of secondary research by analysing the past international practices and conflicts. Another important contribution of this article to clearly understand the relationship between the nature of the business, business models and the advice provided to that with the external stakeholder or the clients (Brown, 2019). This framework aims at determining the initiatives taken by the external stakeholders and how it helps in providing an advice which is in the best interest of the client. It provides a clarity on the current initiatives taken by the Australian government to reduce the risks and structural barriers.
This research paper undertakes both primary as well as secondary research in order to achieve the goals and aims of the paper. Qualitative study is used to develop and understand the various theories and practices that are generated from the given case studies and data (Wilson & Lavery, 2019). This research was carried out in three phases where the first phase focused on the content analysis of the achievable data, which included regulatory documents and regulated financial advice by the Australian government. Followed by the second phase where the in depth semi structured interviews were conducted. The interview was conducted among the eight financial advisors and their governance directors (Brown, 2019). These interviews conducted would uncover the private and uncommunicable world to gain insights of alternative assumptions and the ways of approaching it. The financial phase focuses on undertaking the royal commission reports published in the year 2018 and 2019 in order determine the triangulation strengths and validity of the research findings and data to enable refinement of models and various frameworks that the article discusses. The paper provides integrated frameworks and various models that provides financial advice in the best interest of the clients and critically analyses them.
Analysis and Conclusion
The case about the Storm’s collapse talks about analysing the client’s risk tolerance attitude. To understand if the client is willing to take risk or is risk averse is very important in order to conclude what advice would be good for the client and would fall under the best interest of the client. The FASEA code of ethics suggests an adviser to understand the client’s needs and interests instead of assuming and then proceed according to the requirements.
The Royal Commission misconduct was one of the major report filled in the year 2019. It highlighted the various misconduct of the commission and how their clients were treated with disrespect and dishonesty. According to the standard 2 of the FASEA code of ethics an adviser should and must act in the best interest of the client, which the Royal Commission failed to do. The study in the report was done with proper analysis and authentic details.
The other two evidences discusses about the third standard in the FASEA code of ethics, which is about the conflict of interest. If an adviser is not sure of what he is advising, he should seek clarification from his other peer professionals or refer the client to other advisers in the market without hesitation. The study above discusses about how increase in number of laws and regulations are leading to more confusion and conflicts. The research correctly analyses the gap or the issue and is discussed in detail in the paper. However, the recommendations made in the paper are weak and unrealistic as it fails to resolve the actual issue.
References:
Brown, R. (2017). The profession: The high road to relevance. Professional Planner, (97), 32.
Brown, R. (2019). Cracking the code life under standard 3. Professional Planner, (125), 28.
Bruhn, A., & Miller, M. (2014). Lessons about best interests duty.
Davis, K. (2013). Commission.
Davis, K. (2019). The Hayne Royal Commission and financial sector misbehaviour: Lasting change or temporary fix?. The Economic and Labour Relations Review, 30(2), 200-221.
De Gori, D. (2017). The FPA’s blueprint for a professional tommorrow. Professional Planner, (102), 50.
Millhouse, D. G. (2020). Best Interest Duties of Financial Advisers-More Law, More Confusion. Enterprise Governance eJournal, 1(1), 1-14.
Sharpe, T. (2018). Back to school. Professional Planner, (105), 8.
Smith, M. (2019). The ethics lens. Professional Planner, (122), 4.
Wilson, W., & Lavery, R. (2019). 2030: Advice, investment and superannuation in a brave new
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