FASEA EXAM INSIGHTS #4: A practical approach to preparing for an ethical advice exam

The aim of the adviser exam is to ensure every advice provider has the knowledge and ethical reasoning ability to be able to navigate their way through the obstacle course of incentives, conflicted remuneration, competing priorities and work pressures to achieve great advice outcomes for clients.

Therefore, a very important part of your exam preparation should be to practice recognising Ch7 Corporations Act breaches and Code of Ethics breaches in a wide variety of adviser-client situations.

It starts by being able to identify illegal and unethical behaviour and unfortunately, there is a long unflattering history to call upon.

These behaviours include baseless product switching, over the counter super & insurance selling, SMSF property scams, hawking, inducement, early super release schemes, inappropriate margin lending, and so on.

Whilst many of these practices are being quickly being consigned to history, I am not certain that all advisers recognise the fact that cookie-cutter (one-size-fits-all) advice and client over-servicing, even in small doses, are also on the no go list.  In RG175.255 & RG175.403 respectively, ASIC makes it quite clear neither is permitted.

Doing the right thing relies on an ethical mindset and having advice processes in place that reflect this mindset.  After all, an adviser’s advice process is the engine room where all client recommendations are generated.  If it is flawed, so is the advice.

ASIC provides specific guidance on advice processes in RG175.254 and clearly sets out its expectation that advice providers must have advice processes that ensure compliance with the best interests duty.

Also noteworthy is subsection (d) of this same section, ASIC clearly expects that advice providers focus on providing advice that is not product specific, whether or not it is in combination with product advice.

Adding to the importance of getting the advice process engine room right, the new Code of Ethics weighs in on the issue in Standards 7-9, which specifically highlight areas such as money, consent, ‘good faith’ product recommendations and record keeping.

Not only does this suggest the need for regular and honest assessment of adviser advice processes, it also demonstrates that the new Code of Ethics isn’t the only show in town.  The Corporations Act (from which the Regulatory Guides are derived) is alive and well and continues to play a big role in shaping good advice.

So, to identify Licensee and adviser behaviour to be avoided and at the same time prepare for the exam, there are a number of places to look for examples:

  • RG175 Licensing: Financial product advisers—Conduct and disclosure has over 20 helpful examples in section E – “Acting in the client’s best interests and related obligations”
  • RG244 Giving information, general advice and scaled advice has many helpful examples plus a very useful Appendix starting at page 37
  • Explanatory Statement to the Financial Planners and Advisers Code of Ethics 2019, contains examples and case studies
  • ASIC News Centre – Media Releases https://asic.gov.au/about-asic/news-centre/find-a-media-release/ a good source of relevant real life examples that had resulted in licence cancellation and adviser banning and, in some cases, custodial sentences.
  • Royal Commission Final Report is listed on the FASEA extension reading list. Volume 2 of that report contains many real life examples that could be drawn upon (e.g. selling of superannuation through CBA branches p79; Aon Hewitt non-consent super switching p263)

# FASEA EXAM INSIGHTS #5 Key knowledge areas to understand BEFORE the exam coming soon!

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