Our support for repealing certain aspects of the Future of Financial Advice (FoFA) legislation was made clear on December 20, 2013. In short, we do not share the view that key consumer protections are compromised.
Read Robbie Campo’s views on why the FoFA amendments undermine consumer protection
Read Brad Fox’s views on the FoFA amendments and the rise of professionalism
On the contrary, we see an opportunity for greater consumer protection and reduced consumer cost through scaled advice, combined with the benefit of unburdening planners from the dead weight of unnecessary red tape and cumbersome policy.
I believe that Robbie Campo, from Industry Superannuation Australia, is incorrect technically when she says that “it effectively repeals the best interests duty, leaving in place just a hollow heading”.
She continued: “Under the proposed changes a planner could meet the best interests duty without needing to consider their client’s best interests.”
To summarise, here are the facts:
■ Obligations under the best interests duty are for the first time a statutory obligation in law. This was not the case before FoFA, and this duty will remain long after any amendments made by the government. The significance of having a best interests duty obligation in law should not be underestimated as it provides the consumer with protection and certainty never seen before. It also provides the regulator and the courts with powers greater than those available under common law.
■ The industry pushed for the safe harbour steps to provide some criteria for how a financial planner could be judged. Otherwise it would have to wait for the courts to decide what “best interest” looks like by setting a precedent.
■ The best interests duty and related obligations (in division 2 of part 7.7A of the Corporations Act) require financial planners to complete four obligations when providing personal advice to retail clients:
1. act in the best interests of their clients (s961B);
2. provide appropriate advice (s961G);
3. warn the client if advice is based on incomplete or inaccurate information (s961H);
4. prioritise the client’s interests (s961J and s961L).
The seven safe harbour steps are covered in the first obligation to act in the best interests of the client, in s961B. It should also be remembered that s961B(1) states that “the financial planner must act in the best interests of the client in relation to the advice”. Then s961B(2) provides the seven safe harbour steps as a way to help the financial planner discharge this duty. The purpose of this was to provide clarity and certainty about what a financial planner must do to meet their obligations.
The obligation does not end with the seven safe harbour steps. The financial planner must also provide advice that is appropriate; warn the client if the advice is based on incomplete or inaccurate information; and finally, they must prioritise the client’s interests.
The obligation to warn clients and provide advice that is appropriate was present before FoFA. However, the obligations to act in the best interests of the client and to prioritise the client’s interests are new and are not being repealed.
■ The proposed change to the best interests duty is simply the removal of the seventh safe harbour step, in s961B(2)(g). This does not in any way remove or diminish the legal obligation for a financial planner to “act in the best interests of their clients”, as required in division 2 of part 7.7A of the Corporations Act.
The FPA will continue its mission to educate consumers about the benefits of professional financial advice, and the professional difference that consumers can benefit from when choosing a certified financial planning professional, operating under a world’s-best code – the FPA’s Code of Professional Practice.
The number one principle in that code has always been that FPA members have an obligation to place the client’s interests first.
This article appears in the February 2014 edition of Professional Planner
