Question

Scenario 1 Michael is a financial adviser. His two new clients are Beverley, age 68, and her daughter, Sue, age 45. Beverley receives the maximum age pension and is a homeowner. Her other assets include an account-based income stream and other assets. Sue: Earns $350,000 per year • Has $980,000 in a retail superannuation fund; and • Owns a $690,000 portfolio of managed funds. Both the superannuation and managed funds are invested according to the licensee's standard model portfolio Ongoing review service: Both clients are entitled to an annual review, which includes a twice yearly automatically generated portfolio report and newsletter. • Sue has had no review for the last two years. Sue's ongoing service fee is 0.7% p.a. on the total value of her superannuation and managed funds. Last year's fee was approximately $11,690. Beverley's ongoing service fee is 0.5%. Last year's fee was approximately $1,000. During Beverley's reviewing meeting with Michael, she discloses: An additional $340,000 invested in Sue's name, so this doesn't impact her Age Pension (this is included in Sue's investments listed above) She is secretly in receipt of additional consulting income, which she earns from a long- standing client. This is diverted and paid to Sue's company however, so not to impact on her Age Pension a) Which standards of the FASEA Code of Ethics are likely to be breached and why? (6 marks)

Answer 1

Question: What Standards of the FASEA Code of Ethics are likely to be breached and why?

Ans.: Before answering to the question, we must know that Financial Advisory Job is strictly governed by Rules of law & need to adhere to the standards as set out in their code of conducts. Recently the FASEA (Financial Advisory Standards And Ethics Authrity) has been made effective since 1st January, 2020. Ethical obligations have been enhanced with this new laws.

Higher Ethical Standards are to be followed, while taking up the job of Financial Advisor. FASEA Code is more strict in terms of not only the compliance with the law but also the action one takes to avoid legal obligations as intended by law.

In the query above, there is basic breach of trust laws. Various Standards which have been broken, may be narrated as under.

FASEA Standard 1: Advior is supposed to act in accordance with all applicable laws including this code and not try to avoid or circumvent their intent. Here if knowingly , the advisor continue advise to hide the income of its client, he is under minimum ethical obligations to advise to adopt the correct path of disclosing the income to which it belongs. Hiding of facts relating to income, also supported by disclosures to be signed by advisor, hence if done, its a breach of ethics.

FASEA Standard 6: Advior is supposed to take into account the broad effects arising from the advise and actively consider the Cleint;s broader and long term interest and circumstances. The Standard includes the impact of advise even on clients family members at large. Hence in the aforesaid query, Whatever Investment done in the name of other than client's name and the Income from client's of client under advise in others name, will have bad effect in long term to the family members. Its a clear breach of Standard 6.