FASEA EXAM INSIGHTS #5 Key Knowledge areas to understand BEFORE the exam

This is an ethical advice exam.  One of the key knowledge areas will be to know the interrelationship between the Chapter 7 Part 7.7A Best Interests Duty (BID) and the new Code of Ethics.

At first glance, the Code of Ethics appears to be adding an ethical overlay on top of the Part 7.7A Best Interests Obligations.

However, on a closer reading it does far more than that.   The devil is usually in the detail and this is the case with the Explanatory Statement to the Code of Ethics.

The ethical platform is laid down in Standard 2 in a two-part statement, “You must act with integrity and in the best interests of each of your clients”

It demands that advisers act ethically to the highest professional standards, but it expressly binds advisers to do, or not to do certain actions.

Here is just one of many examples.

This one is found in Paragraph 36 of the explanatory Statement:

“You should take into account your client’s express wishes but these do not override your duty to give advice that is in the client’s best interests.”

This effectively removes a long held belief by some that the client is always right; and that advisers should give demanding or misguided clients what they want, regardless.

Indeed it is an adviser’s job to help clients to achieve the outcomes they want, but not always via the means the client wants.

As all advisers know, clients are sometimes prone to acting on impulse and reacting to peer pressure and greed; and all too often it can override caution and common sense.

This interpretation of the code prevents an over-obliging adviser from taking advantage of an insistent client, and / or appeasing demanding or misguided clients with inappropriate advice that would not be in their best interests.  In other words, it expressly obligates advisers to save clients from themselves.

The Code reinforces advisers as professionals with the training and experience to know the risks, problems and liabilities that can await clients down the track; with a duty to steer them in the right direction.

The following are some example of situations that are likely to be addressed by this statement (this is not an exhaustive list):

  • Agreeing with insistent clients to proceed with a SMSF, knowing that it is inappropriate advice, and without sufficient inquiry into their relevant circumstances
  • Acting for both spouses in separation and divorce proceedings
  • Willingly over-gearing greedy clients into margin lending products when it is clearly inappropriate to their relevant circumstances
  • Recommending over-risky superannuation investments to achieve an over-ambitious  client retirement target where the client clearly doesn’t understand the risks
  • Willingly going along with client wishes and allowing them to getting themselves into trouble as a result of a range of ‘bar-b-que’ advice received from friends and relatives

For other examples of how the new Code of Ethics builds on the Corp Act best Interests Duty, register for one of my adviser exam tutorial programs.

You have the choice of

  1. The 10-week live online version (starting 7th August) or
  2. The DIY Home Pack version. More information at http://garyweigh.com/

FASEA EXAM INSIGHTS #6 ‘Handy tips on how to prepare for your exam’ coming soon.

To catch up missed EXAM INSIGHTS read them at http://garyweigh.com/blog/