Financial planning industry tackles code of conduct confusion
The code of conduct carve-out to opt-in requirements has led to questions over what happens when there is a disparity between the approach of financial planning licensees and the obligations of authorised representatives, as well as suggestions larger licensees could look to submit their own codes.
Minter Ellison partner Richard Batten has questioned what obligations advisers have if their licensees decide to comply with opt-in rather than looking to exploit the code of conduct carve-out, but the individual financial planner still belongs to a professional body.
Technically, the opt-in requirement applies to the fee recipient, so it depends which party has the contract with the client, he said.
"If the contract for provision of ongoing advice is between the licensee and the clients, then the licensee has the obligation subject to the carve-out to issue the renewal notice. If the contract is between the representative and the client, then it's the representative," Batten said.
For example, a Financial Planning Association member working for a licensee that holds the client contract - which Batten said is not uncommon in larger organisations - may still need to comply with opt-in.
Where a licensee decides not to bother going down the code of conduct path and instead requires all representatives to comply with opt-in or is aligned with an organisation that has a different code of conduct to the individual representative, it could create tension between what the licensee is asking and what the representative is legally required to do, he said.
FPA general manager policy and government Dante De Gori said if a planner is granted class order relief then the exemption applies to the planner, and if a licensee places additional requirements on its representatives that would then be a matter of process between the licensee and the planner.
My Adviser managing director Philippa Sheehan described the situation as "an absolute mess" and said advisers were confused about what was going to happen.
If codes turn out to be very restrictive, we may see some licensees and advisers decide that opt-in is easier to manage, she said. My Adviser is preparing for opt-in either way, and Sheehan said software provider XPLAN is working on a solution that looks seamless.
Financial advisers don't want to have to pick one association if there are potentially conflicting codes, while we may see licensees mandating a particular code from an association which may ostracise advisers who don't support that association, she said.
There is also the chance that "a whole range of Mickey Mouse associations pop up to get codes through" or that larger licensees will implement their own codes to get around opt-in, Sheehan said.
Batten said it is hard to see how the Australian Securities and Investments Commission (ASIC) could justify precluding other organisations from the code of conduct regime under the current legislation if they met the right hurdles, but the only way to test it would be an appeal to the administrative appeals tribunal.
De Gori said the industry should welcome licensees looking to improve standards via a code of conduct, but it would depend on ASIC whether those codes would be recognised as obviating the need for opt-in.
The fact the measure was tied to opt-in was causing debate, but subtracting from the bigger picture of the benefit of more advisers being signed up to professional codes. "It's remarkable that we're debating whether planners should or shouldn't be bound by a code of conduct," he said.
ASIC Commissioner Peter Kell recently said he did not expect non-representative bodies to submit codes, but did not rule out the possibility.
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