Compliance
Debatable ethics
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A debate is raging about what the Financial Adviser Standards and Ethics Authority's Code of Ethics means for ESG investing and advising clients on ethical investment options, with FASEA chief executive Stephen Glenfield forced to clarify the issue.

The example provided in Standard 6 of the Code of Ethics appears to be the source of the confusion - states that financial advisers must take into account the broad effects arising from the client acting on their advice and actively consider a client's broader, long-term interests and likely circumstances.

In the accompanying Code of Ethics Guidance, releases by FASEA in October 2019, this example is given in relation to Standard 6: "Where your clients indicate they only wish to invest in ethical or responsible investments, you will need to consider whether limiting your product recommendations in this manner is appropriate."

Dave Rae, a financial adviser and owner of DPR Wealth, explained that his reading of the guidance indicates that advisers should be asking clients whether they would prefer to invest in an ethical or responsible manner.

For Rae, who is a member of the Ethical Adviser's Co-op and the Technical Working Group for the Australian Sustainable Finance Initiative, that would mean business as usual - however for other advisers it could present a significant hurdle to jump.

"The way the explanatory statement is worded to me quite clearly says that every adviser will have to consider ethical and responsible investments," Rae said.

"And the only way you can consider that is by asking the client whether they have particular ethical considerations or preferences."

For Rae, the issue of whether the FASEA code means advisers have to ask whether their client has ethical investment preferences is one of semantics. Stephen Glenfield, FASEA chief executive, offered this clarification to Financial Standard: "In short, Standard Six does not require the adviser to ask about ethical investments."

"Rather, where a client indicates they only wish to invest in ethical or green investments, Standard Six requires the adviser to consider whether this is in the client's best interest."

Nonetheless, Rae is not alone in his interpretation of FASEA's comments; others have also taken the explanatory statement around Standard 6 to mean ethical investing may require more attention from advisers.

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