At a high level, SPAA believes the Future of Financial Advice (FoFA) reforms are an important initiative for ensuring more Australians benefit from receiving quality financial advice, which is why we have been keen participants in the consultation process.
We are particularly pleased the Federal Government decided that the best interest duty requirement will “have regard to the client’s instructions”, which we interpret as a “win” for SPAA. We have been leading the advocacy on this. We believe a client instruction requirement is paramount if the best interest duty is to achieve the desired outcomes for consumers.
SPAA has outlined a strong argument for including the client’s instructions in a “best interest” duty requirement – as doing so implied a duty of care by the adviser. SPAA believes that this requirement includes what the adviser knows or ought to have known.
Former judge and SPAA patron Sir Anthony Mason pointed to court decisions where advisers have been prosecuted for failing to follow “client instructions”. For example, in a Hong Kong case, an inexperienced investor expressed a wish to invest conservatively, but was then advised to borrow in one currency and invest in another. This recommendation was made without the risks being explained, and even though the adviser knew the investor was investing all of her savings.
So, not only did the adviser fail to warn the client about currency and gearing risks, but the adviser also recommended an investment unsuited to the client’s circumstances. A reasonably prudent adviser would be expected to warn the client about the risks and should not recommend an investment which is or should be known to be unsuitable for the investor. There have been similar cases in Australia where customers have sued banks that have advised customers to take up foreign currency loans without explaining all of the risks.
SPAA notes that the new best interest duty is split. The adviser’s duty is to prioritise the client’s best interests, but, where there’s a conflict between the adviser and their employing organisation in doing this, the priority is still the client.
Separately, on FoFA, SPAA is also pleased to see the Federal Government has reconsidered its decision to ban commissions on individual insurance within superannuation. This measure will remove distortions and will ensure a level playing field for individual insurance policies. This is a positive measure for the self-managed super fund (SMSF) sector.
And, while our preference would have been to avoid statutory opt-in obligations altogether, we support the commonsense approach taken to how these obligations will be enforced.
However, it is fair to say that SPAA is still awaiting FoFA reform decisions in critical areas, including a replacement for the accountants’ exemption.
We understand the Government is still considering a restricted or structured advice licence for accountants who advise self-managed super funds. SPAA has been working hard to ensure the Government understands the importance of a restricted or structured licence arrangement, which recognises that SMSF accountants may not wish to provide recommendations to clients to purchase specific investment financial products. We have also been advising on raising the minimum competencies required to hold such a licence and we look forward to seeing these final details in the second tranche of the legislation.
SPAA has been advocating for the removal of the ASIC class order within RG200.
We are also advocating for intra-fund advice and scaled advice to have the same level of competency and best interest duty requirements as all other advisers. On this point, we advocate a level playing field for advisers and a fair go for consumers who deserve to receive the highest quality advice possible abouttheirsuperannuation.
Our vision for a level playing field would include the capacity for tax- deductible financial advice.
And, while SPAA believes it is fine for general advice to be paid for and cross-subsidised by a large superannuation fund for the benefit of its members, it believes personal advice on matters such as transition to retirement, retirement strategy and pensions should always be paid for personally by members.
Andrea Slattery is the chief executive of the Self-Managed Super Fund Professionals’ Association of Australia (SPAA).
