‘No safe harbour safety net’ for best interests duty, advisers warned

In a recent BT Technical Services podcast, BT’s Bryan Ashenden said while FASEA released the its draft Code of Ethics Guide earlier in October, it has been a topic of discussion recently following the appearance of the FASEA chief executive before the parliamentary committee.  

Mr Ashenden said a number of commentators have pointed out that the code goes beyond the Corporations Act requirements or that the FASEA interpretation of best interests is different to the Corporations Act definition.

“Both of these are actually correct, but I would suggest also intentional,” he stated.

“In terms of the FASEA code going beyond or higher than the Corporations Act, this is certainly the intent. Indeed, when the bill to lift professional standards was first introduced into Parliament back in 2016, the government categorically stated that the code will impose duties that go beyond the Corporations Law.”

Mr Ashenden said advisers and the industry should remember that the code is principally focused on values, behaviours and the way things should be done.

“This would actually be a very difficult area in which to legislate. Legislation is more about what we do, it’s more rules based. The code has a different purpose, but is to work in conjunction with the legislative requirements to ultimately lift the standards that apply in providing financial advice,” he explained.

Best interests, he noted, also has a slightly different approach under the code.

“There is no safe harbour safety net, and for those who continue to rely on the seven safe harbour steps in the Corporations Law, it is important to remember that, technically, this doesn’t mean your advice is in the client’s best interests — it simply means you have discharged your Corporations Law requirements,” Mr Ashenden said.

“Now, in most instances I would suggest that following the seven safe harbour steps would in reality mean that advice has been provided in the best interests of the client. The code requires you prove that it is still the case without reliance on those specific steps.”

Mr Ashenden said while there have been calls from industry for FASEA to include specific examples in the draft guide, it is important to remember, he said, that the intent is for this new draft to supplement — not replace — the guidance issued in October 2019 and, therefore, the examples in the previous guidance still remain on foot.

“The use of examples cannot and should not be the be-all and end-all. Examples in the context of a guidance document can only be a guide and clearly can only be based on a limited set of facts,” he said.

“If we want a prescriptive set of rules, then we need legislative change, not a change to the code. And if we get too prescriptive, we will start to lose the professionalism of advice and the advice process. I don’t think this is a path any of us would want to venture down.”