The financial planning industry has some grounds for concern over elements of the regulator’s guidance on the best interests duty and scaled advice, according to a lawyer specialising in the Future of Financial Advice (FoFA) reforms.
For Richard Batten, a partner with Minter Ellison Lawyers, serious questions remain around the best interests duty and specifically the actions an advice provider adopts in providing a client with personal advice.
He also expressed concerns with the time frame that will be afforded the industry when guidance is finalised by the Australian Securities and Investments Commission (ASIC) at the end of the year.
While Batten stressed that he is still in the process of reviewing both Consultation Papers 182 and 183, he identified an implication that the outcome of advice will be considered as a potential sticking point.
“We do not consider that the best interests duty involves providing perfect advice. Nor do we propose to examine the quality of advice, or the advice provider’s conduct, only by reference to the outcome that is later achieved by the client as a result of following the advice. Instead, the best interests duty is concerned with what occurred at the time the advice was given,” states paragraph 44 on page 17 of Consultation Paper 182.
Batten, who will be involved in formulating a response to ASIC on behalf of the Financial Services Council (FSC), says this potentially blurs the lines between best practice and best advice.
“It is good to know that ASIC will not only have regard to results and does not expect advice to be ‘perfect’, but industry is likely to be concerned about any retrospective reference to the outcome of the advice. Perfect is also a very high threshold,” he says. “The implication here is that nearly perfect may be expected.”
Batten believes the dangers of a regulatory environment in which outcomes are considered is a proliferation of risk-adverse advice which will be harder for ASIC or the client to challenge but may not be in the client’s ultimate best interests.
However, he says there is reason for optimism given ASIC’s “willingness to consider measured feedback” and he expects a reasonable opportunity for adjustment from consultation papers to final regulatory guidance.
The principles outlined are “broadly reasonable”, he says, but both consultation papers contain a number of specific examples, which may be open to challenge.
“Examples are fine but the situations in which advice is given are inherently complex and it is difficult to replicate the subtlety and nuance of an advice provider speaking with a client,” he says.
Batten also concedes that industry has a tendency to “study the tea leaves” and that a close reading can lead to an emphasis on every word, where this is perhaps not intended by the regulator.
An issue that cannot be disputed is that ASIC is under a great deal of pressure to get through a backlog of guidance processes on FoFA, with the important consultation paper on conflicted remuneration expected next month.
“Government promised us a year to adjust,” says Batten. “It is clear we won’t be getting close to that.”
Let me discribe ASIC in a word – hopeless !
IT IS NOT ASIC OR THE COURTS WE HAVE TO WORRY ABOUT IN THE SHORT TERM, IT IS THE INTERPRETATION AND CONDUCT OF THE COMPLAINTS RESOLUTION SCHEMES THAT IS THE BIG WORRY FOR ADVISERS. WE CAN’T LET FOS OR COSL BECOME THE CAPITAL GUARANTEE OVERLAY FOR CONSUMERS,WE BADLY NEED MR CORMANN IN THE CHAIR ASAP!