FASEA Professional Ethics and Standards 2 — Questions and Answers
Question 1: Under the FASEA Code of Ethics, Standard 2 requires financial advisers to act with integrity. Which scenario BEST illustrates a breach of this standard?
- An adviser discloses a conflict of interest to the client before proceeding
- An adviser recommends a product knowing it is inferior but does not disclose this to the client (Correct answer)
- An adviser charges a higher fee than a competitor for the same service
- An adviser declines to advise on a product outside their area of expertise
Correct answer: An adviser recommends a product knowing it is inferior but does not disclose this to the client
Recommending a product known to be inferior without disclosure is a direct breach of integrity under FASEA Standard 2.
Question 2: The FASEA Code of Ethics Standard 3 addresses fairness. An adviser is MOST likely breaching Standard 3 when they:
- Apply consistent fee structures to all clients regardless of portfolio size
- Charge one client a significantly higher fee for identical advice without justification (Correct answer)
- Recommend different products to clients with different risk profiles
- Spend more time with complex client situations than simple ones
Correct answer: Charge one client a significantly higher fee for identical advice without justification
Charging unjustifiably different fees for identical services violates the fairness obligation in FASEA Standard 3.
Question 3: Which of the following BEST describes the concept of a 'fiduciary duty' as it applies to financial advisers under the FASEA framework?
- An obligation to maximise the adviser's revenue from each client
- A duty to act in the client's best interests above the adviser's own interests (Correct answer)
- A requirement to always recommend the lowest-cost product available
- A duty to report all client transactions to ASIC
Correct answer: A duty to act in the client's best interests above the adviser's own interests
Fiduciary duty requires financial advisers to prioritise the client's interests over their own financial or personal interests.
Question 4: Standard 6 of the FASEA Code of Ethics requires advisers to take reasonable steps to ensure clients understand advice. Which action BEST fulfills this obligation?
- Providing a lengthy Statement of Advice document with technical language
- Verbally summarising key recommendations in plain language and confirming client comprehension (Correct answer)
- Emailing the advice document and assuming the client will read it
- Having the client sign an acknowledgment form without explanation
Correct answer: Verbally summarising key recommendations in plain language and confirming client comprehension
Actively confirming comprehension in plain language fulfils the adviser's duty to ensure meaningful client understanding.
Question 5: An adviser becomes aware that a colleague is providing advice that is not in clients' best interests. Under the FASEA ethical framework, the adviser should PRIMARILY:
- Ignore the situation as it does not directly involve their own clients
- Report the concern through appropriate internal or regulatory channels (Correct answer)
- Warn the affected clients directly without informing management
- Wait until the colleague's next review before raising concerns
Correct answer: Report the concern through appropriate internal or regulatory channels
Professional ethical standards require advisers to raise misconduct concerns through appropriate channels rather than remaining silent.
Question 6: Under FASEA Standard 7, an adviser must have 'completed' a CPD plan before providing personal advice in a new subject area. This requirement is designed primarily to:
- Increase the number of products advisers can sell
- Ensure advisers maintain and expand their professional competence (Correct answer)
- Reduce the time advisers spend with each client
- Allow advisers to charge higher fees for specialised advice
Correct answer: Ensure advisers maintain and expand their professional competence
CPD requirements under FASEA exist to ensure ongoing competence and currency of knowledge in areas relevant to the advice provided.
Question 7: A financial adviser receives a significant gift from a product provider whose products the adviser frequently recommends. Under the FASEA Code of Ethics, the adviser MUST:
- Accept the gift as a reward for good business performance
- Decline or return the gift and consider whether past recommendations require review (Correct answer)
- Accept the gift but disclose it only if the client specifically asks
- Accept the gift and increase recommendations of that provider's products
Correct answer: Decline or return the gift and consider whether past recommendations require review
Accepting gifts that could influence advice creates a conflict of interest and may require past recommendations to be reviewed for bias.
FASEA Professional Ethics and Standards 2
Under the FASEA Code of Ethics, Standard 2 requires financial advisers to act with integrity.
Which scenario BEST illustrates a breach of this standard?