FASEA Regulatory Framework and Compliance 3 — Questions and Answers
Question 1: Under the FASEA Code of Ethics, Standard 3 requires advisers to not advise, refer, or act in any way that results in what?
- Reduced returns for clients
- A client receiving inferior financial products compared to competitors
- A client being in a significantly worse position than if the service had not been provided (Correct answer)
- Excessive fees being charged to the client
Correct answer: A client being in a significantly worse position than if the service had not been provided
Standard 3 prohibits advisers from acting in any way that would result in the client being in a significantly worse position than if the relevant service had not been provided.
Question 2: Which legislative instrument sets out the specific educational requirements that financial advisers must meet under the FASEA framework?
- The Corporations Act 2001
- The Corporations (Relevant Providers Degrees, Qualifications and Courses Standard) Determination 2018 (Correct answer)
- The Australian Securities and Investments Commission Act 2001
- The Financial Sector Reform (Hayne Royal Commission Response) Act 2020
Correct answer: The Corporations (Relevant Providers Degrees, Qualifications and Courses Standard) Determination 2018
The Corporations (Relevant Providers Degrees, Qualifications and Courses Standard) Determination 2018 specifies the approved degrees, qualifications, and courses for financial advisers.
Question 3: An adviser is offered a complimentary overseas conference trip valued at $5,000 by a product provider. Under ASIC's guidance on conflicted remuneration, this would most likely be treated as:
- An acceptable business benefit below the minor benefit threshold
- Conflicted remuneration that is banned under FOFA (Correct answer)
- A permitted education and training expense
- An acceptable benefit if disclosed to clients
Correct answer: Conflicted remuneration that is banned under FOFA
A $5,000 overseas conference trip from a product provider is likely to constitute conflicted remuneration banned under FOFA, as it could influence product recommendations.
Question 4: What is the 'best interests duty safe harbour' under section 961B(2) of the Corporations Act designed to do?
- Guarantee that advisers cannot be sued for poor advice
- Provide a set of steps that, if followed, will allow advisers to demonstrate they acted in the client's best interests (Correct answer)
- Replace the general best interests duty with a checklist
- Protect advisers from liability if clients suffer financial loss
Correct answer: Provide a set of steps that, if followed, will allow advisers to demonstrate they acted in the client's best interests
The safe harbour provides specific steps that, if completed, allow advisers to demonstrate they have satisfied the best interests duty, though it does not guarantee compliance.
Question 5: Under the ongoing fee arrangement rules introduced post-Hayne Royal Commission, how frequently must clients renew their consent for ongoing advice fees?
- Every 5 years
- Every 2 years
- Annually (Correct answer)
- Only at the start of the arrangement
Correct answer: Annually
Post-Hayne reforms require clients to renew their consent for ongoing fee arrangements annually through a fee disclosure statement and renewal notice process.
Question 6: Which of the following scenarios would require an adviser to provide a Record of Advice (ROA) rather than a full Statement of Advice (SOA)?
- First time advice to a new retail client
- Subsequent advice to an existing client where their circumstances have not significantly changed (Correct answer)
- Advice involving a new risk profile assessment for an existing client
- Advice on a new financial product category not previously advised on
Correct answer: Subsequent advice to an existing client where their circumstances have not significantly changed
A ROA may be used for subsequent advice where the client's personal circumstances have not significantly changed and the new advice is not significantly different from previous advice.
Question 7: Under ASIC Regulatory Guide 175, what is a 'general advice warning' required to communicate to clients?
- The specific risks of the product being discussed
- That the advice does not take into account the listener's personal objectives, financial situation, or needs (Correct answer)
- The adviser's qualifications and experience level
- The fees charged for providing the advice
Correct answer: That the advice does not take into account the listener's personal objectives, financial situation, or needs
A general advice warning must clearly communicate that the advice does not account for the individual's personal objectives, financial situation, or needs.
FASEA Regulatory Framework and Compliance 3
Under the FASEA Code of Ethics, Standard 3 requires advisers to not advise, refer, or act in any way that results in what?