FASEA is coming
By Josh Edmunds, Responsible Investment Association Australasia
The Financial Adviser Standards and Ethics Authority’s (FASEA) Code of Ethics (The Code) is just around the corner, coming into force on 1 January 2020. And while The Code lays the foundations of clear principles and values required for a new age of professionalism for financial advice in Australia, it goes one step further. For the first time, ethical and responsible investment is being bought to the fore.
The Code comprises of 12 standards, 3 of which are particularly interesting to the responsible investment industry, as Standards 2, 5 and 6 all seek to deepen the relationship between the adviser and client to ensure that the advice provided is truly in the best interests of the client; ensuring that broader, longer-term interests are also considered.
Those standards are:
- Standard 2: You must act with integrity and in the best interests of your clients.
- Standard 5: All advice and financial product recommendations that you give to a client must be in the best interest of your client and appropriate to the clients individual circumstance. You must be satisfied that the client understands your advice, and the benefits costs and risks of the financial products that you recommend, and you must have reasonable grounds to be satisfied.
- Standard 6: You must take into account the broad effects arising from the client acting on your advice and actively considering the client’s broader, longer-term interests and likely circumstances.
FASEA has recently released its Code of Ethics Guidance and along with the FPA’s explanatory material, what we see from this is that to be considered acting in a client’s best interests, the adviser is now required to actively consider the broader interests of the client over the longer-term.
For responsible investment… this is big. From January 1, advisers will need to proactively seek to understand their client and their longer-term interests such as their sustainability and ethical preferences. Advisers must be satisfied that they have fully explained all the risks and benefits of their advice having given due regard to clients’ individual circumstances.
This may not seem like a giant leap forward for many of RIAA’s adviser members, particularly those who are Certified, as they are already asking each of their clients about their sustainability and ethical preferences and taking these into consideration in the advice given. But for many advisers this may represent the start of their ethical and responsible investing journey.
So what does FASEA mean for RIAA and its members?
Lots.
To act professionally in any industry is to possess the required knowledge and skill to fulfil your obligations competently. With new requirements to understand the broader and longer-term interests of your client, such as ESG preferences, comes a greater need to ensure you are up to date with environmental, social and governance issues.
You’ll soon start to see a number of new resources become available for members, including glossaries, opinions pieces, fact sheets on topical issues, additional webinars, updates on newly certified products and a new adviser focused newsletter.
For certified advisers, you can expect to see a number of changes to ensure that the Certification Program remains a beacon of excellence through stricter criteria, ensuring that those who are true leaders in this space are highlighted. Advisers will shortly be able to commence the use of post nominals to help highlight their achievement of being a certified responsible investment adviser.
Now more than ever RIAA membership is an essential part of your professional development.