Exploring Standard 5 in FASEA’s Code of Ethics
5th March of 2020

In February 2019, the Financial Adviser Standards and Ethics Authority (FASEA) created a Code of Ethics which consists of 12 standards and 5 values that came into effect in January 2020.

Given that Planlogic is a provider of Financial Planning Solutions, understanding the FASEA Code of Ethics is vital in ensuring that we create compliant SoAs.

This article specifically explores Standard 5 – ensuring that all advice provided to a client is in the client’s best interests and is appropriate to the client’s individual circumstance. As detailed in the Code of Ethics, we evaluate the practical application of the Standard via numerous examples that highlight each key issue related to the Standard.  

The complete Code of Ethics document can be accessed here.

Introduction to Standard 5

As per the Code of Ethics, Standard 5 states that all advice and financial product recommendations that are given to a client by an adviser must be in the best interests of the client. Furthermore, they have to be appropriate to the client’s individual circumstances.

Advisers must also be satisfied that the client understands the advice, along with the benefits, costs and risks of the financial products that are recommended, with the adviser having reasonable grounds to be satisfied.

Practical Applications of the Standard

Example 1: Ineffective SoA

Situation Summary

The template SoA document provided by an adviser’s licensee is long and contains generic information relating to a range of advice topics. The licensee has also requested only minimal changes be made in order to tailor the SoA for individual clients.

Consequently, the document provided to the client does not include clear and simple explanations of the advice. In Addition to this, the client does not explain the benefits, costs and risks involved in implementing the recommendations.

Recommended Course of Action

To overcome this issue, sections particularly relevant to each client’s circumstances can be highlighted. Tailored explanations and additional client education can also be provided in instances where an adviser has any doubt regarding the client’s understanding of the advice.

It is also important that the adviser formally raises the SoA template issue with the licensee, thereby complying with Standard 12. Standard 12 states that all relevant providers must uphold the ethical standards and hold each other accountable for the protection of the public’s interest.

Example 2: Failure to Gain Client Understanding

Situation Summary

An elderly war widow with limited knowledge on financial matters wishes to obtain advice on investing a large lump sum inheritance. The client’s main goal is for the funds to be available for the immediate benefit of her grandchildren after she dies.

The adviser recommends that she invest the inheritance in a managed growth fund.

The SoA discloses the following:

  • The fund is ‘not capital guaranteed’.
  • The fund balance may fluctuate daily due to market movements.
  • There is a risk of capital loss on early withdrawal of the investment.

Upon presenting the SoA, the adviser asks the client to confirm that the recommendations are understood and subsequently requests her to sign a document providing authority to proceed.

Based on the information above, the adviser does not comply with Standard 5 as the advice given does not meet the client’s overall best interest. This is because the client is exposed to the risk of capital loss on early withdrawals and the advice provided does not meet her goal of requiring the funds to be available for the immediate benefit of her grandchildren following her death.

Further, given that the client has limited knowledge on financial matters, the adviser did not ensure that she understood the advice along with the associated risks of the recommendations.

Recommended Course of Action

In addition to verbally confirming that the recommendations were understood and obtaining written consent to proceed with the recommendations, the adviser should have also taken the following steps:

  • Insisted on a longer timeframe for the client to make a decision.
  • Encouraged the client to question the recommendations.
  • Encouraged the client to seek input from a trusted individual – with no conflict of interest in the outcome – to further explain the recommendations to the client.
  • Asked the client to explain the main components of the advice to the adviser.
  • Asked the client questions to test her understanding of the advice.
  • Discussed lower risk options to facilitate comparison and enabled the client to make a more informed decision.
  • Ensured that the client is not obliged to proceed with the recommendations.

Example 3: Third-party Influence on Advice

Situation Summary

An adviser is invited to speak at a property wealth seminar. The seminar organizer regularly promotes the establishment of self-managed super funds (SMSFs) to purchase a property.

Subsequent to the seminar, the adviser is approached by a few individuals who wish to establish SMSFs to implement the organizer’s property strategies.

Recommended Course of Action

Despite risking the loss of referrals from the organizer, it is vital that the adviser is not influenced by the organizer’s property strategies and undertakes a full assessment of each client’s needs and objectives – ensuring that the advice is in the best interest of the client.


In conclusion, to comply with Standard 5, advisers must be certain that the advice provided is clear and simple, with the client clearly understanding the benefits, costs and risks of the adviser’s recommendations.

Additionally, it is vital that the adviser acts in the best interests of the client while ensuring that self-interest does not prevail.