Much has been said about the Quality of Advice Review recommendation to replace the “Best Interests Duty” with a duty to give “good advice”, and that advisers should be subject to a new “statutory best interests duty”. In doing so, the QAR calls out several failings of BID in its current form.

What the discussion certainly highlights, and indeed acknowledged by the Minister for Financial Services Stephen Jones in last week’s QAR Roadshows hosted by Conexus Financial (in Sydney, Brisbane and Melbourne), is the layers upon layers of regulation to which financial advisers are currently subjected. The Minister hinted at simplifying some of the existing laws, and acknowledged the “tick-a-box, form-filling procedural exercise” that the BID “safe harbour” had become.

Let’s compare other advice-based professions. How have lawyers, for example, been able to provide advice day-in day-out without the legislature (or their relevant Law Society) dictating what that advice should be or how it should look? No Statements of Advice for lawyers. Indeed, the idea of regulating an 80-100 page advice document for lawyers comes across as quite ludicrous when you play out the narrative. It would likely mean Australians would be less inclined to engage lawyers, which of course is problematic.

The law says that lawyers owe a fiduciary duty to their clients. Any basic consideration of the fiduciary duty under the general law speaks to notions such as:

  • Acting in your client’s best interests (sound familiar?);
  • Avoiding conflicts of interest (sound familiar?);
  • Prioritising your client’s interest over yours (sound familiar?); and
  • Clients placing their trust and confidence in you.

Seems to have worked well enough over the centuries without needing to reduce it to a legislative checklist. It appears the legal profession trusts the judicial system to make those calls.

Yet the sky hasn’t fallen in for the profession. In fact, despite the absence of legislated advice prescription, clients enjoy healthy relationships of trust and confidence with their lawyers, the legal profession continues to thrive, more and more lawyers enter the profession (not exit in droves), and the profession enjoys a privileged and respected (some might even say honourable) place in the community.

Further, lawyers in private practice enjoy the benefit of limited liability under professional standards legislation. Yes, liability is capped. As the NSW Law Society neatly puts the proposition:

[The schemes] are specifically designed to promote professional standards, enhance consumer protection and to enable private practice members to limit their civil liability to selected amounts.

The NSW Bar Association says this (in relation to barristers):

The New South Wales Bar Association Professional Standards Scheme benefits the entire communityIt is widely accepted that outcomes for clients improve significantly when there is competent legal advice and representation at the earliest possible stage of any dispute. In fact, the proper operation of our court system depends on the interaction between experienced judges and specialist advocates.

So, the provision of legal advice with limited liability:

  • Promotes professional standards;
  • Benefits the community;
  • Ensures consumers can access timely and affordable legal advice;
  • Ensures the provision of legal services;
  • Enhances consumer protection; and
  • Keeps insurance premiums down.

How does the heavily-regulated provision of financial advice stack up against each of these metrics?

Thankfully, the QAR potentially opens the door to a simplified and common-sense solution. I say potentially because the proposed reforms sit on the precipice of FoFA 2.0 if poorly handled by the Government. FoFA 1.0 speaks for itself: the industry doesn’t need a reincarnation.

Part of the QAR’s rationale for the recommendations is to “impose a true fiduciary duty on financial advisers who have undertaken to provide advice in the best interests of their clients“.