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Professional responsibility and accountability: the FPA Code of Professional Practice


By June Smith

The current Joint Parliamentary Committee (PJC) Inquiry on corpo rate financial products and services has received many submissions urging the Committee to lift both the professional and competency standards of financial advisors working within the Australian Financial Services Industry.

However, for CFP® practitioners and other FPA members, moves to increase pro fessionalism and align the professional responsibilities and accountabilities of Australian financial planners with global professional standards are already well underway.

The new FPA Single Code of Professional Practice Project reflects the new Financial Planning Standards Board (FPSB) global standards of professional conduct and har monises nine separate layers of obligations for FPA members into a Single Code of Professional Practice.

These layers include the new FPA Code of Ethics, revised FPA Rules of Professional Conduct, miscellaneous FPA Professional Standards and FPA Guidance Notes.

The Single Code of Professional Practice is intended to articulate:

' The relationship between professional ism and the quality of advice;

' The relationship that FPA members have with the financial planning profession; and

' How the financial planning profession al's obligations to meet professional and ethical conduct standards differ from the requirements to comply with ASIC's expec tations and the law.

The Single Code of Professional Practice is also intended to reflect the professional practice, professional responsibility and professional accountabilities of all FPA members. In doing so, an altruistic ideal of service to the community in the provision of quality financial advice is retained.

Components of the Single Code of Professional Practice

The different elements of the Single Code of Professional Practice include:

' The new FPA Code of Ethics - Enshrines eight principles of professional expectation for FPA members, which will be explored in more detail later in this article.

' FPA Practice Standards - Establishes the road map for the financial planning practice obligations of FPA members and embed the six-step financial process that leads to quality advice.

' FPA Rules of Professional Conduct - Identifies the specific rules and require ments that a member must abide by in order to meet the expectations of the profession.

' FPA Guidance - Provides guidance to members in interpreting elements of the Code of Professional Practice and establish es practice models designed to assist mem bers in their day-to-day activities in provid ing professional services.

The new FPA Code of Ethics

The ethical principles in the new FPA Code of Ethics are statements that express in general terms the ethical standards that FPA members should adhere to in their pro fessional activities. The principles are aspi rational, and are intended to provide guid ance on what is considered to be appropri ate and acceptable professional behaviour for FPA members.

The ethical principles reflect the recogni tion of the financial planning profession's responsibilities to its key stakeholder groups, including the public, clients, col leagues and employers. The principles are intended to guide the performance and activities of members involved in the prac tice of financial planning and the concept and intent of those principles are adapted and enforced through specific new rules of professional conduct.

There are eight core principles within the FPA Code of Ethics. In their application to a financial planner's day-to-day decisions, these eight principles set broad standards against which the fulfilment of specific obli gations can be gauged. The eight principles in the FPA Code of Ethics are:

Principle 1 - Client First

Placing the client's interest first is the hallmark of professionalism, requiring the financial planning professional to act hon estly and not place personal gain or advan tage before the client's interests.

Principle 2 - Integrity

Integrity requires honesty and candour in all professional matters. Financial planning professionals are placed in positions of trust by their clients and the ultimate source of that trust is the financial planning profes sional's personal integrity.

Allowance can be made for legitimate dif ferences of opinion, but integrity cannot co- exist with deceit or subordination of one's principles.

Principle 3 - Objectivity

Objectivity requires intellectual honesty and impartiality. Regardless of the services delivered or the capacity in which a finan cial planning professional functions, objec tivity requires financial planning profes sionals to ensure the integrity of their work, manage conflicts and exercise sound profes sional judgement.

Principle 4 - Fairness

Fairness requires providing clients with what they are due, owed or should expect from a professional relationship, and includes honesty and disclosure of material conflicts of interest. It involves managing the professional's own feelings, prejudices and desires to achieve a proper balance of interest. Fairness means treating others in the same manner that you would want to be treated.

Principle 5 - Professionalism

Professionalism incorporates behaving with dignity and showing respect and cour tesy to clients, fellow professionals, and others in business-related activities, and complying with appropriate rules, regula tions and professional requirements. It requires the financial planning professional to enhance and maintain the profession's public image and its ability to serve the pub lic interest.

Principle 6 - Competence

Competence requires attaining and main taining an adequate level of abilities, skills and knowledge in the provision of profes sional services. It requires a continuing commitment to learning and professional improvement, and the wisdom to recognise the professional's own limitations and con sult with other professionals where appro priate.

Principle 7 - Confidentiality

Confidentiality requires client informa tion to be protected and maintained in such a manner that allows access only to those who are authorised. A relationship of trust and confidence can only be built on the understanding that the client's information will not be disclosed inappropriately.

Principle 8 - Diligence

Diligence requires fulfilling professional commitments in a timely and thorough manner and taking due care in the planning, supervising and delivery of professional services to the client.

What does 'Client First' mean in practice?

The explanatory statement provided under each of the eight ethical principles is both a brief explanation of the principle itself and how it might apply to a financial planner's business and professional rela tionships.

The new Code of Ethics contains only one new principle compared to the FPA's previ ous Code of Ethics, and that is the principle of 'Client First'. This ethical principle makes it clear that a financial planner's primary professional obligation is to their client. Placing the client's interest first is consid ered a hallmark of professionalism, requir ing the financial planner to act honestly and not place personal and/or employer gains or advantage before the client's interest.

The statement emphasises the centrality of the client in the financial planning rela tionship and ensures that the client's inter est always comes first. The client's interests and the client's instructions are not always the same, however, and this principle does not mean that the client's instructions are to be followed at all times without question. Indeed, there may be circumstances where this should not occur. For example, if the client's instructions require the financial planner to engage in conduct that is illegal or leads to an illegal outcome, whatever the benefit or gain to the client. In this instance, the Client First principle will be a duty to be considered in light of other duties owed by the financial planner to the public interest and to the financial profession itself.

In Australia, there has been a long run ning debate about the extent of the finan cial, legal, ethical and professional obliga tions of financial planners to their clients.

It is anticipated that the Client First prin ciple will provide a meaningful framework for consumers and financial planners, and respond to some elements of a fiduciary relationship between the financial planner and their client. A fiduciary relationship requires the fiduciary:

' To be loyal to the person to whom they owe the duty;

' Not to put their personal interests before the duty owed; and

' Not to profit from their position as a fiduciary, unless the client consents.

The Client First principle is consistent with the fiduciary duty of loyalty and sug gests that a financial planner who under takes to act on a client's behalf must not misuse their position to their own or a third party's possible advantage.

It is sometimes suggested that a fiduciary duty of loyalty requires all conflicts between the interests of the client and the fiduciary to be avoided, unless the client gives informed consent to the fiduciary continu ing to act, despite the conflict. Similarly, the Client First principle is likely to be inter preted such that a financial planner must ensure a client gives informed consent to any conflict of interest, through the proper disclosure of that conflict and how it will be effectively managed.

The Client First principle does not envis age that the client will receive the best advice, best financial strategy or best finan cial product in all the circumstances. In a professional financial planning world con taining an almost infinite array of suitable financial products and/or suitable strate gies, subject to volatility and uncertainty, and in dealing with clients who by defini tion have unique backgrounds and circum stances, it may be impractical in some cir cumstances to expect that an individual professional could be held responsible for the best possible outcomes for their clients. However, the financial planner must be able to demonstrate that the advice given has been in the client's interest.

It is expected that the Client First principle will apply to all types of advice and service provided to a client, whether or not the advice provided to the client is execution only, limited advice or holistic in nature.

It is likely it will also apply to all types of client relationships, whether or not that relationship is short or long term, or whether the client is an individual or a company.


The FPA Single Code of Professional Practice and the principle of Client First set a benchmark for conduct and profes sionalism for financial planners above the minimum legal requirements of the Corporations Law.

This is to be expected for members of a profession in which clients place their trust. However, adhering to the principles in a Code of Ethics goes well beyond learning the right thing to do and how those princi ples might apply to theoretical situations. Ethics is not merely a matter of getting things right, but rather a matter of relating to people in a special and specifically human way.

June Smith is a principal of Argyle Lawyers, a member of the FPA Professional Conduct Committee and Chair of the FPA Disciplinary Review Board. She is currently completing a PhD in Financial Planning Ethics at Victoria University.




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