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FASEA responds to 3 tricky advice & service situations

solving the FASEA codeStarting late last year and continuing into 2020 I’ve had many conversations with financial planning businesses about their advice and service propositions as a result of the FASEA code of ethics coming into play from 1 January 2020.

Three tricky unresolved scenarios emerged so I decided to put my Editor hat from the Adviser Marketing Week blog and reach out to FASEA for some guidance. Thanks to Stephen Glenfield, CEO of FASEA for these responses.

Scenario 1 – Can something be free?
Can an adviser charge something as ‘free’ in the client agreement? Eg Our free client education program that includes ongoing quarterly newsletter and access to our online knowledge centre.

FASEA response:

“The Code of Ethics does not define what services and/or fees are to be included in the client agreement. The adviser will be required to use their professional judgement to ensure they have they have met all the ethical values contained in the Code of Ethics.”

Scenario 2 – Free and informed consent and deceased estate fees?

Can an adviser charge a ‘death administration fee’ (perhaps not the right name), for administration matters related to an estate? Should this go into the client agreement or does the executor agree to this? Standard 7 of FASEA says the client must give free and informed consent … but that’s hard to do if you’ve died. Does the executor become the client? If so, does the adviser need a signed agreement with them before proceeding?

FASEA response:

“The Code of Ethics does not define what fees are to be included in the client agreement. The adviser will be required to use their professional judgement who needs to consent to the fee given the situation and ensure they have they have met all the ethical values contained in the Code of Ethics.”

Scenario 3 – In the case of divorce, which client does the adviser keep?

The standards state an adviser should not act for parties who are divorced. In the event that a couple becomes divorced during a client/advice relationship, how does an adviser select which client they keep as a client and which client goes? How do they do this without bias and what’s the decision making criteria?

FASEA response:

“The adviser will be required to use their professional judgment to determine which of the two clients they are able to continue to advise without any conflicts, otherwise they may decide that they are unable to act for either client.”

Assessment and key take outs for implementation…

Here’s our analysis on the scenarios. On all scenarios here the adviser should use their professional judgment. Additionally they should make sure they’re satisfied their decisions and actions meet the values of the code. These values include trustworthiness, competence, honesty, fairness and diligence.

Scenario 1 – Can something be free?

Yes it can be.

The code of ethics does not define what services and/or fees can be used in the client agreement. If there’s something you’d like to offer all prospects and clients like a budget planner or newsletter, you can do so.

Does offering something for free go against any of the values? Professional judgment of a reasonable person would say no. From a client awareness perspective, you might also include these items in your client service agreement to ensure they’re getting maximum value from your advice and service offerings, even the free ones.

Scenario 2 – Can an adviser charge a ‘death administration fee’ (perhaps not the right name), for administration matters related to an estate?

Yes they can.

The Code of Ethics does not define what fees are to be included in the client agreement. The question then becomes ‘Who provides consent’?  Professional judgement of a reason person would probably say that the executor of the estate (where there is a will) or an administrator of an estate (where this is no will) is the best person to consent to the fee.

Does seeking consent from the executor or administrator go against any of the values? A reasonable person’s professional judgement might ask why wasn’t the fee disclosed to the client while they were alive? Having the fee outlined in the client agreement provides the financial planner with something to show the executor or administrator should the client die to demonstrate the client was aware of the fee. It might make the executor or administrators task to review and accept the fee easier. Not having it in a client agreement however doesn’t mean they can’t agree to the fee should a death event occur.

Scenario 3 – In the case of divorce, which client does the adviser keep?

The adviser can keep one of the clients provided they have no conflicts.

Standard 3 specifically states: “You must not advise, refer or act in any other manner where you have a conflict of interest or duty.”

Additionally, the Code of Ethics Guidance states as an example: “Sally has 2 long-term clients, Bill and Emily, a married couple. They tell Sally that they are divorcing. Because of the divorce, their interests will no longer be the same. If she were to continue to act for both of them, Sally’s duty to Bill would conflict with her duty to Emily.”

So clearly the in the event of a divorce, a financial planner may only keep one client.

Does offering to keep one client go against any of the code’s values? A reasonable person’s professional judgement would probably say yes, except in a situation where:

1. The adviser notified both clients as a result of the decision to divorce; they can no longer by law act for both of them moving forward, and
2. That the adviser would be happy to work with either client moving forward, and
3. In the event both clients wish to continue, the adviser will refer one of the clients to another adviser ensuring no conflicts.

A reasonable person might ask what happens if the client being referred isn’t happy with that? Standard 2 states “You must act with integrity and in the best interest of your clients.” In a case like this, then it’s probably a situation where the financial planner can’t act for either client.

Are there alternative approaches? Yes, there probably are. A business for example might have a policy on how it decides and this is shared with prospects before they become a client. This way they have free and informed consent.

Moving forward for with these and other scenarios

In writing this article it reinforced to me that this is really what the FASEA code (standards + values) is about. It’s not about setting rules for financial advisers to blindly follow. Blindly following rules led to many of the negative outcomes seen by participants of the royal commission. FASEA seems to want to get advisers to actively think about the ethical issues as a part of their ongoing advice and service delivery. The emphasis is also on the adviser meeting their responsibilities and not outsourcing them to others.

There’s a real opportunity for licensees and membership organisations like the FPA, AFA and others to reset their best practice frameworks for all service situations, including the tricky ones using the responses and insights shared here. To date we’ve seen a lot of non FASEA guidelines and uncertainties where ‘professional judgement’ and ‘consideration of the values’ hasn’t yet probably occurred to reach a solid conclusion. I’d like to see professional membership organisations continue to the lead on this as they’re ideally placed to host round-tables and provide thought leadership pieces for discussion, approval and then wide use.

Over time, once advisers become familiar with the standards, values and yet to be created best practice frameworks, the ambiguity felt by many right now should dissipate. That’s my sincere hope for the profession anyway. Of course, if you have any thoughts yourself, please feel free to share them below through our moderated blog.

 

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About Peter Bowman

Peter Bowman is a Private Marketing Consultant and the Author of Service 7. He works with Financial Planners, Accountants and other professional service providers on their marketing needs.

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