The Financial Adviser Standards and Ethics Authority is using its Code of Ethics to re-write the law rather than providing genuine guidance to financial advisers, the industry association believes.
According to the Association of Financial Advisers, FASEA vowed to consult with industry associations ahead of releasing final guidance on the Code of Ethics but failed to do so.
The association also said FASEA is using the code as an opportunity to re-write the law rather than providing genuine guidance to the industry.
The promises of consultation were made during meetings the AFA had with FASEA on 24 May 2019 and 4 July 2019.
However, the guidance was released on 18 October 2019 with no consultation.
Advisers are expected to be compliant with the code from 1 January 2020. The code was first issued in February 2019 and the AFA said at the time the code was issued it was told "not to read the code too literally" and promised that guidance would shortly be released.
After eight months of waiting, the guidance has fallen well short of the kind of clarity the AFA was looking for.
"What the guidance provides is no certainty, in that it lacks any explanation of where financial advice will be compliant, but rather identifies cases where potentially it might not be compliant," AFA general manager, policy and professionalism Phil Anderson said in a paper sent to AFA members.
"This has meant that we now have important additional areas of uncertainty with respect to brokerage, asset-based fees and commissions."
FASEA's guidance confirmed that it wants advisers to act free from any conflict of interest or duty - something the AFA views as completely unrealistic.
Of conflicts, Anderson said: "They cannot be completely eradicated, and an outright ban would be entirely impractical."
And again, FASEA failed to consult with the industry on this point, he said.
"Despite being required by the Corporations Act, FASEA never consulted on this requirement to avoid all conflicts," Anderson said.
Anderson said FASEA does not understand the unintended consequences of its desire to remove all conflicts from financial advice.
The AFA pointed out that at a Senate Estimates Hearing FASEA chief executive Stephen Glenfield said: "FASEA is not banning any particular form of remuneration."
However, the code does essentially ban referral fees and - as Anderson points out - lacks any examples of permitted forms of remuneration.
Glenfield's comments have added to the confusion because, the AFA said, it is inconsistent with the code's banning of any conflict of interest.
Anderson pointed to research conducted by Investment Trends breaking down the revenue streams of advice practices.
If grandfathered trail commissions, life insurance commissions and asset based fee for service charges are at risk under the code then 57% of practice income is at risk as a result of Standard 3's stance on conflicts of interest.
"The entire financial advice sector is left completely uncertain as to what will be permitted under the code and what will not, with less than two months until commencement and no obvious way to fix this problem," Anderson said.
"With all forms of commissions and asset-based fees now in doubt, 57% of financial adviser practice income is at risk, as a result of this version of the code of ethics."
The only positive thing Anderson had to say about the code was that the media release accompanying the guidance included the following: "The Code is a living document and subject to change, as required."
The AFA is calling for Standard 3 to be fundamentally changed with the ban on conflicts of interest removed.
In the 18 page document designed to help AFA members navigate the code and guidance, Anderson points out flaws with every single one of the 12 standards.
Anderson said: "With less than two months to go until the scheduled commencement of the requirement to comply with the code of ethics, we have reached the following conclusion: The code of ethics is unworkable in its current form."
The AFA is calling for the commencement of the code to be deferred until financial advisers have time to "sensibly prepare for implementation" and the code is re-worked.
"It is unfortunate that the FASEA board has sought to use this as an opportunity to re-write the law that applies to financial advice, rather than use this as an opportunity to provide sensible guidance to the financial advice community with the development of a code that is both practical and consistent with the best interests of clients," Anderson concluded.