There are alternative ways to simplify and clarify best interests duty for advisers that don’t involve a complete repeal of the safe harbour steps, according to Association of Financial Advisers chief executive Phil Anderson.
After shadow financial services minister Stephen Jones all but ruled out getting rid of the safe harbour steps – which many view as redundant in light of the Code of Ethics – Anderson reassured AFA members that there are other ways to reduce the requirements associated with best interest duty.
Speaking on a member webinar Thursday morning, Anderson said the simplest improvement would be to remove section 961(B)2 from the Corporations Act.
“We’ve seen the [Financial Services Council] make the recommendation that the BID safe harbour steps should be repealed,” Anderson explained. “Stephen Jones came out earlier this week and made a comment about how he didn’t agree with that, but there is an alternative.”
Along with the seven ‘safe harbour steps’ that are outlined in 961B, there is an eighth exhortation for advisers to take “any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances”.
It’s this requirement that Anderson believes could be excised from the Act.
The addition is well-intentioned, he tells Professional Planner, but “really bureaucratic”.
“Why give us this other vague steps requirement when we don’t even know what that is?” he says.
An additional way to simplify compliance, Anderson explained on the webinar, would be to wind back the ASIC record keeping class order that requires advisers to document evidence they have demonstrated compliance with the safe harbour steps.
It’s an issue the Australian Law Reform Commission took up in its interim report on complexity within financial services legislation, whereby it considered that either repealing the provisions or having them “re-cast as indicative behaviours of compliance” would promote “more meaningful — rather than ‘tick a box’ — compliance, and help achieve a more principled and simpler legislative regime”.
Anderson told AFA members the record keeping directive is a “great contributor of additional record keeping and a time-consuming activity”.
“What we’ve got now is a mandatory compliance checklist whereby not only do you need to do it but have evidence you’ve done it,” he said. “It’s become overly prescriptive and problematic.”
“It seems to be perceived that you need to repeatedly explain why your advice is in the best interests of the client,” he added. “We need to ensure that those expectations are clear.”