Industry Super Australia has always viewed the best interests duty as being the cornerstone of the financial advice reforms. It is central to shifting the culture of the advice industry from being focused on the selling of distribution of product, to being regarded as a true profession that prioritises clients’ interests.
Anyone who is serious about building consumer confidence in advice, and overcoming past problems with advice driven by conflicted remuneration, should be sceptical about proposals to dilute the best interests duty.
Let’s be clear on what the proposed winding back of the best interests duty is about. It is justified as a means of improving access to scaled advice – but there are currently many providers delivering scalable advice and complying with the current duty. Is there anyone prepared to admit that the proposed wind-back is about diluting consumer protection and reintroducing the capacity for product sales to take priority over the client’s best interests?
So let’s look at the actual proposals. The first proposed amendment – to permit clients and advisers to “agree” to limit the subject matter of the advice – is seeking to legalise contracting out of the advice. Most clients would struggle to understand the implications of what they are being asked to agree to, which is why it should fall to the adviser to determine the appropriate scope of advice.
There have been high-profile cases in the past where this type of “agreement” has been used in a way that benefits the institutions wanting to sell product, but at the cost of their clients. If this measure became law, we would undoubtedly see these practices occur again. You can’t imagine a doctor getting their patients to agree to limit the doctor’s professional obligation.
The hysteria about section 961B(2)(g) of the Corporations Act – the “any other reasonable steps” obligation in the best interests duty legislation – also continues.
The Australian Securities and Investments Commission (ASIC) has made it very clear that what this section requires is for an adviser to ensure there is a strategic basis for any product recommendation; to explain to the client what advice is or is not being provided; and to remind the client to review the advice after a specified period or if their circumstances change.
Industry super funds assist thousands of members with scaled and intra-fund advice each year in full compliance with all best interests requirements and do not see this clause as any impediment.
The best interests duty is not about tripping up an adviser for failing to take into account a factor that should not reasonably have been thought about in the context of the topic of advice.
Over the longer term, an effective best interests duty will be invaluable in shifting public perception and confidence in the financial planning profession – so we should all be behind it.