Code Standard 1 – is the bar high enough?

What does “placing client interests first” mean?

“Acting in the best interests of a client” is pretty much self-explanatory – it is first about professional conduct and then about best interests.  This contrasts with the obligation to “place interests of the client first” which has a lot less clarity.  As worded, this obligation is not about conduct nor about a client's best interests. “Best interests” and “interests first” are two very different concepts, resulting in a different standard for advisers when compared to other professionals.

The Code of Conduct itself provides little guidance to define “interests first” suggesting that the test is determined by "... what is reasonable in the circumstances”.  This limited guidance is just parking the issue of interpretation for the future.

“Interests first” does not mean acting in the client’s “best interests” nor does it mean putting those “best interests” first.   "Interests first" means something less.  The explanation most often heard is that financial advisers are simply required to provide “suitable” or “appropriate” advice for the client.  This means advice satisfies Code Standard 1 by "... placing a client's interests first”, regardless of whether it promotes the best interests of the client. 

If this interpretation is correct then advice could include recommendations to use managed funds produced by an adviser’s firm or QFE that are more expensive than competitor funds, less diversified and/or more volatile.  Advice wouldn't have to be the best (or even second best) solution, just a suitable solution arising from merely placing the client's interests first.