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FASEA Ethics
| Question | Answer |
|---|---|
| The five Values underpinning the Code of Ethics are: | Trustworthiness Competence Honesty Fairness Diligence |
| The Code covers four areas: | Ethical Behaviour Client Care Quality Process Professional Commitment |
| Standard 4 says: | You may act for a client only with the client’s free, prior and informed consent |
| Standard 5 says: | 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. |
| before an adviser commences to act for a client, the adviser must explain the following to their client: | • what services will be provided • the terms on which services will be provided • the records that will be made of the services, and the privacy and confidentiality arrangements applicable to them. |
| Section 946A of the Corporations Act 2001 requires financial firms | to give a statement of advice (SOA) to retail clients who receive personal financial advice. |
| The SOA must include | • information about remuneration and benefits • all conflicts of interest that may affect the advice • the costs, loss of benefits and other significant consequences when recommending switching between financial products. |
| it is necessary to consider the following four factors which AFCA considers when making a determination about whether a client’s consent was obtained | Did the financial firm consider the client’s experience, language skills, literacy and numeracy? |
| Standard 5 complements and expands on the requirements of | Standard 2, which focuses on the best interests duty to the client. |
| Financial literacy is defined as | the ability to make informed judgements and to take effective decisions regarding the use and management of money. |
| Coined by Thaler and Sunstein, the term | ‘choice architecture’ refers to the practice of influencing choice by ‘organizing the context in which people make decisions’ |
| Standard 6 reflects the best interest obligation set out in | section 961B of the Act |
| Standard 6 suggests that financial advisers have an obligation to provide their clients with holistic advice. That is, financial advisers have a duty to provide advice that covers strategies to: | • build wealth for their client • manage the client’s expenses • protect the client’s family, lifestyle and assets • plan income for now and in retirement for their client • determine how to pass the client's wealth on to the next generation |
| Standards 4-6 are categorised in the Code of Ethics under the sub-heading | ‘Client Care’ |
| The language used in the code is described as | Mandatory |
| 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. |
| Standards 7–9 concern | quality process |
| When providing advice, financial advisers have an obligation to: | • act in the best interests of their clients (the ‘best interests duty’) • provide appropriate advice • prioritise the interests of clients ahead of their own interests and the interests of certain specified related parties. |
| good quality advice is any advice which educates and | equips clients to make informed decisions about their finances, including whether to accept and implement the strategies and products recommended to them |
| For an existing client, consent must be obtained as soon as practicable after this Code commences on | 1 January 2020 |
| You must decline all benefits derived from a third party other than their principal and comply with remuneration requirements in | Divisions 3 and 4 of Part 7.7A of the Act, including all prohibitions on ‘conflicted remuneration’. |
| Standard 8 provides a clear obligation that financial advisers must | maintain complete and accurate records |
| ASIC Class order 14/923: | Record-keeping obligations for Australian financial services licensees when giving personal advice |
| Financial advisers must offer all financial products and financial advice to clients | in good faith, that is, they must be honest and act in the client’s best interests |
| Financial advisers must offer financial product advice and all financial products ‘with | competence' |
| To prevent misleading and deceptive conduct, advisers should consider taking the following steps: | - Apply common sense when making a representation about a product or service - Ensure claims can be substantiated - Never remain silent if a client misunderstands - Challenge a provider if the info they are distributing may be misleading or deceptive. |
| Standards 7 to 9 relate to | good practice standards and consumer expectations |
| Standards 10–12 are about | professional commitment |
| the obligation set out in Standard 12 introduces | a new enforceable concept on financial advisers |
| Advisers should not provide advice to clients in relation to particular issues | unless they have the requisite knowledge and skills to do so |
| From 1 January 2019, Section 921C(1)(b) of the Corporations Act prohibits | ASIC from granting a financial services licence to a person who does not meet certain education and training standards. |
| Any individual who wishes to become a relevant provider must: | • pass a financial adviser exam • have a relevant bachelor or higher degree (or equivalent qualification) • complete a professional year • meet CPD requirements each year. |
| Section 922HD of the Corporations Act provides that ASIC | must be notified by a monitoring body for a compliance scheme if the monitoring body determines a relevant provider covered by the scheme has failed to comply with the Code of Ethics |
| ASIC’s Regulatory Guide 269 sets out provisions in relation to the investigation and handling of allegations of non-compliance. key principles should be considered: | • What was the nature and seriousness of the failure • What was the nature of the financial adviser’s conduct after the failure occurred • What is the likelihood of behaviour change after the imposition of sanctions • Are there any mitigating circumsta |
| Standard 12 introduces the concept of | bystander responsibility |
| Standard 12 introduces the concept of bystander responsibility. It raises the following three obligations for financial advisers: | • a duty to uphold and promote the ethical standards of the profession; • a duty to hold each other accountable in protecting the public interest; and • a duty to supervise providers effectively. |
| Standard 12 suggests financial advisers should act as the | ‘moral compass’ or ‘gatekeeper’, which will make them more likely to avoid ethical dilemmas and legislative breaches |
| For a gatekeeper enforcement regime to be effective, it must have three key elements: | • a gatekeeper ‘who can and will prevent misconduct reliably’ • a gate, that is, some service which the wrongdoer needs to accomplish his goal • a law enforcement mechanism |
| ‘Robo-adviser’ refers to any automated service that | ranks, or matches consumers to, financial products on a personalised basis. |
| In cases where personal advice is provided to retail clients, a digital advice licensee must ensure | records are retained for seven years to show how the licensee has complied with the best interests duty and related obligations in Div 2 of Pt 7.7A: see s 912G |
| There should be a process defined to regularly review and update algorithms whenever there are factors that may affect their currency, such as | market changes and changes in the law. |
| Some of the minimum steps that digital advice providers should take to comply with the best interests duty in s 961B of the Corporations Act when providing ‘scaled’ advice are: | • Explain the scope of the advice • Require the client to actively confirm that the advice they are seeking is within the scope of the digital advice model. • At key points in the advice process, inform the client about the limitations |
| Ethics are the principles, values, and ways of thinking that guide a person to make | moral choices, which are reflected in the way they behave. |
| When faced with ethical dilemmas, both financial advisers and clients may be | consciously or unconsciously influenced by a range of factors (‘barriers’) leading to compromised ethical decision-making. |
| Financial advisers and clients may make decisions based on their personal preferences or perspectives, influenced by social stereotypes or biases about certain groups of people. | Implicit/Unconscious bias |
| Rationalisation. | may provide a self-serving explanation or rationale for acting in a manner that is detrimental to the client’s best interests or is unethical |
| Financial advisers may so align themselves with their clients’ interests that they lose objectivity in decision-making. | Partisanship |
| Ethical fading | the process by which the ethical aspects of a decision tend to disappear from one’s perception |
| Ethical scripts | where financial advisers follow unconscious knowledge structures or ‘scripts’ based on how events typically turn out without evaluating all possibilities, resulting in unethical behaviour. |
| Consequentialist framework | This framework recommends focusing on the consequences of an action and achieving the desired outcomes to determine whether a decision is ethical. |
| Consequentialist framework - key limitations | The framework may lead to making ethical compromises to achieve the desired outcomes. It is difficult to predict outcomes for every scenario. |
| Virtue framework | This framework recommends showcasing a behaviour that is similar to a virtuous person’s behaviour. It encourages reflection on one’s own character while staying focused on the client’s best interests and the greater good. |
| Virtue framework - key limitations | The framework prescribes developing good character and doesn’t provide guidance on decision-making. This can lead to disagreement on the traits of a virtuous person and, ultimately, to difficulty in resolving disputes. |
| Duty framework | Recommends focusing on duties and obligations that arise in situations and any ethics-related choices arising out of them. The Code of Ethics is based on this framework on the client’s best interests and the greater good |
| Duty framework - key limitations | The framework may appear cold, impersonal and rigid. It may not assist in distinguishing between conflicting duties. |
| Keep in mind the following four points when making decisions with an ethical component: | • Consult with your colleagues and mentors when in an ethical dilemma. • Be self-aware. Know your own blind spots. • Remember, an unethical decision taken deliberately cannot be justified by any excuse. • Remember the advantages and disadvantages of ea |
| They are a disciplined group of individuals who adhere to ethical standards, possessing special knowledge and skills in recognised areas. | Professionals |
| Competence and conscientiousness — caring about other people and acting ethically — are the hallmarks of | professionalism. |
| The FPA’s professional framework has three key components | Professional membership Professional accountability Professional conduct |
| The six principles of professionalism, based on the AFA’s Code of Conduct, are: | Integrity and professional conduct Best interests Conflicts of interest Informed client consent Service standards Professional expertise |
| The FPA’s Code of Professional Practice incorporates three enforceable components — | the Code of Ethics, Seven Practice Standards and Rules of Professional Conduct. |
| The FPA's Seven Practice Standards are: | Engage Collect the client’s information Analyse and assess the client’s financial status Identify suitable financial planning strategies and develop the recommendations Implement recommendations Review the client’s situation Professional obligations |
| Part 7.7 of the Corporations Act regulates | financial services disclosure |
| Part 7.7A of the Corporations Act | outlines the requirements for the provision of personal advice to retail clients. |
| Part 7.6 of the Act provides for | the licensing of providers of financial services. Licensees are required to maintain the competence to provide financial services and ensure their representatives are adequately trained and are competent to provide relevant financial services. |
| The regulatory guidance... | ...interprets the law while providing recommendations for compliance with the law and best practice |
| ASIC’s Regulatory Guide 175 | - Intended for persons who provide advice to retail clients and their professional advisers - Considers how conduct and disclosure obligations in the Act apply to the provision of advice - Indicates how ASIC will administer the law |
| These two primary regulators of financial services in Australia are | • The Australian Prudential Regulation Authority (APRA) The national regulator of prudential institutions — authorised deposit taking institutions, insurance companies and super funds • (ASIC) The national regulator of financial markets. |
| APRA’s role is to ensure that | financial promises made by regulated entities are met within stable, efficient and competitive financial markets |
| ASIC’s role is to ensure that | Australia’s capital and financial services markets are fair and transparent, supported by confident and informed investors and consumers. |
| two regulators APRA and ASIC are said to share common policy goals. These goals are: | • protecting consumers • promoting stability • maximising efficiency of the financial system. |
| The objective of the FOFA reforms was to improve the trust and confidence of retail investors in the financial planning sector. The reforms amended the Corporations Act and introduced the following four elements: | • a prospective ban on conflicted remuneration structures • a duty for financial advisers to act in the best interests of their clients • an opt-in to renew their clients’ agreements to ongoing fees every two years • an annual fee disclosure statement |
| Under the Corporations Act 2001 (Cth), Single Disciplinary Body is responsible for: | • Code of Ethics • approving qualifications • approving an exam • selecting an appropriate common term for provisional relevant providers • setting standards for future education requirements • the professional year |
| In November 2018, Single Disciplinary Body published a professional standards framework which includes the following five elements: | • revised maximum and minimum educational requirements • mandatory examination • work and training requirements • annual continuing professional development (CPD) requirements • compliance with the Financial Planners and Advisers Code of Ethics 2019. |
| A code monitoring body’s responsibilities include: | • monitoring compliance with the Code by proactive monitoring and receiving reports from licensees, advisers and the public • determining if breaches of the Code have occurred • imposing sanctions and reporting breaches of the Code to ASIC |
| Potential sanctions that a code monitoring body may impose can include: | • warning • additional training • supervision • corrective action • an independent compliance audit (licensee) • providing the services to the client again at reduced fees • exclusion of the non-compliant adviser from coverage of the scheme |
| ASIC’s approach to compliance scheme approval and oversight is underpinned by three key principles: | Behavioural change Transparency Consistency and fairness |
| The term ‘must’ represents | high-obligation language |
| The use of mandatory language in principles-based regulation is unusual | Such language may leave less scope for financial advisers to assume ethical risk in ethical decision-making. |
| the objects in Chapter 7 which provide: ‘The main object of this Chapter is to promote: | • confident and informed decision making by consumers of financial products and services • fairness, honesty and professionalism • fair, orderly and transparent markets • the reduction of systemic risk |
| Standard 2 can be broken down into two ethical duties: | Act with integrity Act in a client's best interests |
| The duty of integrity and the inherent duties of | openness, honesty and frankness |
| The duty to act in a client’s best interests requires advisers to ensure the advice they give — and the products and services they recommend — are | appropriate to meet the client’s objectives, financial situation and needs, taking into account the client’s broader long-term interests and likely future circumstances. |
| The person satisfies the section 961B duty if the person takes the following four steps: | • identifies the client’s objectives, financial situation and needs • completes any reasonably apparent gaps in the information • conducts a reasonable investigation of potential products • bases judgments on the client’s relevant circumstances |
| Explanatory Statement suggests that a financial provider must: | • keep confidential all information about the client • treat all clients in a respectful and professional way • treat all clients fairly, |
| According to the Explanatory Statement, an adviser should take into account | their client’s express wishes but these do not override the adviser’s duty to give advice that is in the client’s best interests. |
| The legislative duty to avoid a conflict of interest is, however, different to the duty to avoid a conflict of interest in the Code of Ethics. This is because | under the Code of Ethics conflicts are forbidden in their entirety |
| The following principles arise from the duty to avoid conflicts of interest under the Code of Ethics: | • Where a conflict of interest or duty arises, an adviser must disclose that conflict and cannot act • Cannot refer if referral benefit • Cannot obtain a personal benefit by related party products • An adviser who obtains consent nevertheless breaches |
| Financial advisers who demonstrate ethical behaviour may be | better able to engage in ethical decision making and ethical leadership, and hopefully engender trust with the community. |
| What is a characteristic of virtue ethics? | It deals with the rightness or wrongness of individual actions |
| Name an obligation under Standard 9 | Have in place adequate arrangements for the management of conflicts of interest that may arise wholly or partially |
| The three main values and obligations of Standard 9 are relevant to what domain? | Financial products and advice |
| According to the Australian Financial Complaints Authority (AFCA), when a complaint is received about misleading conduct, AFCA will: | • ask complainants and financial firms to supply relevant information; and • consider all the available information to conclude what is most likely to have happened |
| AFCA will consider two main questions when assessing misleading conduct allegations: | • Did the financial firm mislead the complainant? • if so, did the complainant suffer a loss by relying on the firm’s misleading conduct? |
| AFCA will not award compensation to a complainant if the complainant | • cannot show that they relied on the misleading conduct and suffered loss as a result • would have suffered the loss regardless of the misleading conduct • would not have been able to gain the benefit or take up the opportunity elsewhere. |
| What percentage of the 40 hours CPD must be approved by the adviser's licensee? | 70% |
| When did the CPD plan obligation come into effect? | 31 March 2019, irrespective of the commencement of the licensee's CPD year |
| List 4 types of records RG175 requires licensees and relevant providers to keep on file | • Advice documents • Records of conversations with clients • File notes • Working papers • Audio recordings |
| An adviser who has an existing adviser when the Code came into effect must meet the following: | • Have an approved degree • Pass the exam • Complete annual CPD |
| A new entrant to the industry must meet the following: | • Have an approved degree • Pass the exam • Complete annual CPD • Complete the professional year |
Created by:
frankhall
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