Taxation & Estate Planning

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CPD Questions

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1. In terms of testamentary capacity, a person making a

Will must understand:

a) The Will’s nature and effect b) The nature and extent of the assets they own c) Their moral obligation to provide for dependants d) All of the above

2. Jo’s Will is contested by her daughter on the basis Jo did not know what she was signing. This is:

a) Elder abuse b) Outside the realm of a claim because it is pure conjecture c) A knowledge or approval claim d) Only possible if Jo used a DIY Will

3. Evidence for impaired-capacity claims includes:

a) Social media posts b) Handwritten notes c) Bank statements d) All of the above

4. Zac displays ‘odd’ behaviour and alters his Will, as he thinks his beneficiaries are exploiting him. Which of the following statements is most correct?

a) This is a sign that Zac lacks capacity b) Zac may still have capacity c) Zac’s behaviour must be more pronounced for any challenge to proceed d) Zac’s condition is not degenerative, so a challenge cannot proceed

5. Testamentary capacity is a legal and medical test.

a) True b) False

6. An early-stage dementia diagnosis does not automatically preclude someone from making a Will.

a) True b) False

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the elderly. It is a hard topic to broach and it can be difficult to say to someone that we consider you may not have capacity, or we want to ensure that you do have capacity in order to write a Will. These questions can be demeaning to a person, and best handled professionally.

It might not necessarily be the Will-maker’s capacity which is a concern. It may be regarding a family member or third party who accompanies that person to their appointment and we can see they are making a dramatic change to their Will. In these instances, having a letter from their doctor will serve them down the track.

There are several cases that suggest the evidence provided by the solicitor who prepared the Will were preferred to medical reports. The reason for this is that testamentary capacity is a legal test, not a medical test. Unfortunately, when it comes to DIY Wills, there is no evidence of this kind if someone was to contest on these grounds. Therefore, those types of documents will often be contested.

What if someone has been diagnosed with early-stage dementia?

A diagnosis like this does not necessarily mean a person cannot make a Will. There are different stages of dementia, or degenerative conditions, and it does not automatically mean someone does not have capacity. There are certain stages even in later-stage dementia where a person can have lucid periods. An experienced estate lawyer will be able to help navigate these issues and concerns, and can help make a Will, ensuring appropriate notes are taken and all the evidence is documented.

The importance of acting early

It is important to seek immediate advice if a person has concerns about the validity of a person’s Will. After that person passes away, there is usually a brief window of opportunity to take steps to ensure that the Will was properly made. Challenging the validity of a Will can be daunting, so it is important to seek advice from a lawyer who is knowledgeable and has experience in this complicated area of law. fs

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Ethics & Governance:

30 Understanding FASEA Code of Ethics values

By Dr Ray McHale, MyNextAdvice

37 The dangers of ignoring client vulnerability

By Jamie Munton and Paul Derham, Holley Nethercote

30

Ethics & Governance

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CPD

Earn CPD hours by completing the assessment quiz for this article via FS Aspire CPD.

Worth a read because:

FASEA’s Code of Ethics comprises five ethical values which form the bedrock of its 12 standards. This paper provides pragmatic working definitions/interpretations of these values and suggests how advisers can use them to foster ethically sound practices and client relations.

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Understanding FASEA Code of Ethics values

Dr Ray McHale T he Financial Adviser Standards and Ethics Authority (FASEA) Code of Ethics (Code) consists of the five ethical values of trustworthiness, competence, honesty, fairness, and diligence; and these underpin the prescribed 12 standards. Often overlooked, the values are paramount and dictate how all ‘relevant providers’ (advisers) are required to behave from 1 January 2020. They must always act in a way that demonstrates, realises and promotes those values.

There has been an unmistakable focus on compliance outcomes, particularly since the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (Royal Commission). It is understandable why licensees and their authorised representatives are preoccupied with trying to interpret the practical meaning and implications of each of the 12 standards, although FASEA has clearly stated in its latest guide that “The standards are not a compliance checklist”.

To confirm, the ultimate test (as prescribed in the legislation), is whether each adviser has conducted themselves in a manner that demonstrates, realises and promotes the values. Therefore, licensees and advisers who approach compliance with the Code as a black letter law, box-ticking exercise around each of the standards in isolation are missing the point.

While there may be room for interpretation of the standards (the Code is principles based), the values are non-negotiable. All other provisions of the Code must be read and applied in a manner that promotes these values. So, the real challenge is to apply the values every day when undertaking professional activities with clients, consumers, colleagues and the public.

Individual advisers need to consider these values through their actual day-to-day behaviours and think, feel and act in a manner consistent with the values. According to FASEA, “Each must be ready to give an account of how they have interpreted and applied the Code in specific situations”.

It is both regrettable and ironic that a single regulatory body has yet to be established to oversee adviser compliance with the Code, although licensees have an obligation to report breaches to the Australian Securities and Investments Commission in the interim as it takes a ‘facilitative’ approach.

The federal government (government) has flagged its intent to legislatively enable a single disciplinary body by mid-2021, so the best the industry can hope for is greater certainty by then. This, however, does not absolve advisers from their legal obligation to comply from 1 January 2020. Advisers must be able to demonstrate, realise and promote the values from that date.

The objective of this paper is to provide a resource to help better understand each of the values in the Code and to offer some practical guidance about how to work towards achieving them.

Trustworthiness

The government and relevant regulators have made it abundantly

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clear they are responding to the Royal Commission’s findings for the principal purpose of improving the level of trust and confidence the community has in the financial advice industry. These critical outcomes are closely intertwined—it is difficult to generate confidence in anything without first establishing a suitable level of trust.

So, one of the first and most critical issues a client wants to address in their relationship with an adviser is the issue of trust. Can you demonstrate that you are worthy of my trust? Will you act in my best interests at all times and place my personal and financial interests before your own? If I cannot trust you, why should I do business with you?

A definition Our definition of trust is the degree of confidence that a prospect or client has that their adviser can be relied on to fulfil their commitments, be fair, be transparent, and not take advantage of their vulnerability.

Information asymmetries will always exist between a client and their adviser because the adviser will usually have more information at their disposal, relative to the advice topic being addressed. So, a prospect or client anticipates that their adviser will not engage in unexpected behaviours, irrespective of their ability to monitor or control activities.

From FASEA’s perspective “Acting to demonstrate, realise and promote the value of trustworthiness requires that you act in good faith in your relationships with other people. Trust is earned by good conduct. It is easily broken by unethical conduct.

“You earn trust by being reliable in your relationships with others, and by doing what you say you’ll do. Trust requires having the courage to do what is right, even though you may suffer personal detriment by doing so. It requires that you are loyal to each of your clients, and that you keep client personal information entrusted to you private and confidential. It requires that you should not subordinate your duty to your client, or your client’s lawful interests, to your own interests and any obligation you may owe to a third party, including an employer or a financial services licensee.

“Trust requires you to act with integrity and honesty in all your professional dealings, and these values are interrelated.

“Acting ethically, with trustworthiness, promotes trust by consumers in the profession of financial advisers, promoting community confidence in accessing and utilising professional financial services.”

Note that trustworthiness is not a standalone value. It is informed by and interacts with other values such as integrity and honesty (the latter being one of the remaining four values underpinning the Code).

In the extensive research we have undertaken over many years, we have isolated a number of relationship variables that are responsible for more than 75% of the variance in the trust score.

As you will know from your own experience, trust can take quite a bit of time to develop, however, it can also be destroyed very quickly through unthinking actions or omissions. Everything you do in the conduct of your business needs to be seen in this context. Trust is earned over time through consistent good conduct, undertaking regular reviews of each client’s circumstances, educating them along the way and through ongoing quality communication.

In collecting data from clients of advice businesses for some time, we know for a fact that trust is highly correlated in a positive way to how much clients value their relationship, the extent to which they are prepared to forgive when things do not go to plan (and this will happen), whether they are likely to remain a client and whether they are prepared to refer you to their friends, family and work colleagues.

The implications are very significant. The higher the level of trust you can achieve with clients, the more likely they are to value you and your advice (think value for money), forgive you, stay with you and advocate for you—all highly positive outcomes for an adviser’s career and business.

According to the latest FASEA guidance, you will need to demonstrate the value of trustworthiness to meet the following standards:

Standard

1

2

3

4

5

6

7

8

9

10

11

12 Y

Y

Y

Y

Y

Y

Y

Y

Y

Y

Y

Y

Some practical suggestions Start a checklist As you consider what can be done to comply with the Code, you should think about using a checklist of questions relevant to your dealings with prospects and clients and use the checklist to guide your practical actions. Here are a few suggestions about what questions to include on your checklist: • Will I derive an inappropriate personal advantage if my client accepts my advice recommendation(s)? • Have I disclosed any actual or potential conflicts of interest to my client during the advice process? • Did I apply a high level of relevant knowledge and skills when advising my client? • Will my advice put my client in a better financial position? • Did I act in my client’s best interests at all times? • Did I take reasonable steps to meet all my commitments to my client?

Dr Ray McHale, MyNextAdvice

Dr Ray McHale is the founder and chief executive of MyNextAdvice Pty Ltd. He has more than 30 years’ experience working in the financial services industry in operational and executive roles and over 15 years providing consulting services with a focus on relationship management and client experience. His company provides client experience management software for advice businesses, delivering a high-definition view of client relationships to improve growth, efficiency and compliance.