Diploma of Financial Planning: FNSFPL501A - Comply with financial planning practice ethical and operational guidelines and regulations

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1 The Obligations of an Authorised Representative It should be apparent to you that financial planning is a profession that continues to attract very close scrutiny from the government, the regulators and the media. A series of high profile scams, collapses and corporate bankruptcies have accelerated the wave of financial planning related reviews, papers and submissions to parliament. However, you cannot legislate against over-riding greed or intentional criminal behaviour and a few rotten apples continue to tarnish the good work and dedication exercised by the vast majority of financial planners. The overriding obligation of a financial planner has been to behave in a professional manner with due care and skill and with high standards of integrity, honesty, fairness and good faith. The Financial Planning Association and various other industry bodies have raised the bar of minimal standards, by enforcing stricter educational and training requirements. Financial Planner obligations are set out under: Corporations Act, National Consumer Credit Protection Act and other relevant legislation industry codes and practices FPA's Professional Standards / Code of Conduct. The Dealers Professional Standards Manual which provides the principles and rules that govern the Financial Planner s activities in providing advice. On-going amendments and changes to the legislation, as proposed by the Future of Financial Advice (FOFA) The Financial Planner must always be identified as the authorised representative of a dealer/ licensee (the vast majority of financial planners do not have their own Australian Financial Services Licence, and therefore fall under this category) and 1

2 must never act in a manner that could lead the client into thinking that the Financial Planner is providing financial services or performing credit activities under their own Australian Financial Services Licence [Corps Act: s. 911C] and/or Australian Credit Licence [NCCPA, s. 30(1)]. The Financial Advisor must only act within the scope of the authority(s) given by the licensee. The Dealer group or licensee will only allow a financial planner to provide recommendations on a certain range of strategies and over a sub-set of wealth creation and wealth protection products. For instance, depending on the experience and qualifications of the financial planner, they may be permitted to provide advice on managed funds and retail superannuation, but no on gearing, derivatives or direct shares. The Financial Planner must also disclose their capacity on all key documents, in particular: Financial Services and Credit Guide Statements of Advice or other advice documents Key business documents including business cards, letterheads, compliment slips, fax cover sheets, advertising and promotional material and websites. Maintaining insurances The Licensee requires that all insurances be maintained including: Professional Indemnity insurance (PI Insurance), and o As has been highlighted elsewhere in this unit, a financial planner cannot practice unless their licensee has appropriate PI insurance. This acts as a safeguard for the client in the event of certain misdemeanours or mistakes that are made by the planner. 2

3 Worker s compensation. o All businesses in Australia employing or hiring workers on a regular, casual or contract basis must have a worker s compensation insurance policy in place to provide benefits to any workers who suffer workrelated injury or illness. On-going Continuing Professional Development (CPD) and Training Financial Planners are fast moving towards being recognized as professionals, much like doctors, lawyers and accountants. As such they are required to undertake continuous and accredited professional development for instance obtain upwards of up to 30 CPD points per year by attending professional developments days, seminars, conferences and passing tests. This ensures that they are across the myriad of fast moving developments in the sphere of finance and insurances, as well as relevant legislative and tax amendments. The Issue of Fiduciary Obligations & Responsibilities Over the course of the past 12 months, there has been extensive discussion on the issue of Fiduciary Responsibility. For instance: Do financial advisers owe fiduciary obligations to their clients under our current interpretation of general law? If so, can the general law duty be disclaimed, by the utilization of appropriate verbal and/or written disclaimers? Are Fiduciary obligations relevant to the quality of advice provided by financial advisers? Therefore, should a Statutory Fiduciary Duty be legislated into law? 3

4 In actual fact, a statutory fiduciary duty for financial advisers forms a key element of the Federal Government s Future of Financial Advice (FOFA) response to the Parliamentary Joint Committee s report. Therefore, it is relevant to re-look at whether effective fiduciary obligations are relevant to the quality of advice that is provide by financial advisers in Australia and if so, whether this should be legislated. The Australian Securities and Investments Commission (ASIC) has also waded into this debate. In its submission to the Parliamentary Joint Committee, ASIC requested that the powerful Corporations Act be amended to clarify that advisers must act in good faith in the best interests of their clients and, where there is a conflict between their clients interest and their own interest, to give priority to their clients interests. ASIC saw this proposed duty as being analogous to the duty imposed on responsible entities of managed investment schemes by section 601FC of the Corporations Act. ASIC s request was based on its view that the existing rules governing conflicts of interest were not sufficient. ASIC believed that a statutory fiduciary-style duty would lead to a higher quality of advice and the emergence of a professional advice industry. The Commonwealth government has clarified that the fiduciary duty will apply to personal financial product advice. It also appears that the duty might only apply to advice provided to retail clients, although this, like most areas of financial planning and superannuation will change in due course! The government has indicated its view that a statutory fiduciary duty will help to improve the quality of advice. However, it is s unclear whether the proposed duty to place the interests of clients ahead of the interests of the adviser is meant to add anything to the proposed duty to act in clients best interests - and, if so, what it 4

5 would add. The Government has indicated that the details must be worked out in consultation with industry during implementation. The Government has also indicated that if there is nothing appropriate on the adviser s list, the adviser might need to look beyond it (there are serious difficulties with this suggestion ) or else decline to act (which would be a more prudent choice!). The Government s position is, in this respect, more in tune with the views of the UK s Financial Services Authority - that is, if there is nothing appropriate on the adviser s list, declining to act should be the optimal outcome. 5