Advisers could be legally exposed

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Amendments to Future of Financial Advice reforms will leave the advice industry open to significant potential future litigation, according to a legal advice got by Industry Super Australia.
 
ISA said in a statement this morning that the advice, from law firm Arnold Bloch Leibler, concluded if the more significant amendments were implemented by regulation, they risk being declared “invalid” and “susceptible to challenge in the courts”.
 
According to ISA, their legal advice states, “a court declaration of invalidity would operate retrospectively… financial advisers who relied on the regulations could be found to have acted unlawfully. The regulations would therefore create significant uncertainty…and could well become the subject of protracted litigation between financial advisers and their clients”.
 
ISA CEO David Whiteley said the legal opinion indicates the Government's amendments to FOFA would likely increase uncertainty for the industry and risk litigation.
 
“The advice indicates that there is significant doubt regarding the Government's regulation-making power to make changes on ‘opt in’, fee disclosure and best interests.
 
“In light of this, industry super funds would suggest that the FOFA laws be given time to settle in and that they be reviewed as a part of the upcoming financial systems inquiry.”
 
However, adviser representative groups such as the Financial Planning Association think any litigation likely to happen is if the amendments do not get passed.
 
“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 until the courts decide on what best interest looks like by setting a precedent,” FPA CEO Mark Rantall said.

He accused product providers such as the ISA of unnecessary scaremongering and political posturing in order to throw doubt on whether the FOFA amendments adequately protect consumers.  

Association of Financial Advisers COO Phil Anderson said the only litigation likely to happen is between now and when the amendments are passed, due to lack of clarity.

Amendments to the opt-in provision will “not be an issue”, as it only becomes law on 1 July 2015.

Changes to the fee disclosure statements may become an issue until the amendments are passed, but Anderson points to ASIC’s declared position not to take any enforcement action.

“If a client took their adviser to court because they didn’t get a fee disclosure statement, then technically the adviser will be exposed. But it’s difficult to say what position the courts would take on this.”

“Until any amendments come in we’ve got a lack of clarity and level of uncertainty and anything reviewed by an external disputes committee will be difficult.”

There may be some action taken in court with the best interests duty until amendments are passed, but that is why the AFA are calling for Section 961 (b)(2)(g) – the much-maligned ‘catch-all’ provision of the best-interests duty safe-harbour – to be removed, Anderson said.

“We’ll just have to play it out and see what happens.”
 
  • Mervin C Reed FAICD on 17/02/2014 9:42:25 AM

    Typical ISN - happy to waste their members money on chasing rabbits down holes, only to find that they are wasting their time. We need to bring on a complete review of Trustee Fees that the ISN lot pay to Unions. Maybe the Assistant Treasurer could write to the Royal Commissioner and ask him to have a look at the fees in excess of $100,000 per annum - which is all of them.

  • Paul Levy on 17/02/2014 10:21:50 AM

    When are we going to see some deep investigation into the appropriateness of some of the Industry Fund Insurance products? How can a decreasing cover policy, which on the surface appears cheaper, but by definition and in reality, is far more expensive and over time, decreases in cover means decreases in pay out to a client who may indeed have been far better off with an indexing cover level rather than a decreasing cover level.

    How can that possibly be "in the best interests of the client?"

  • Investor on 17/02/2014 10:31:24 AM

    David Whiteley. Would you trust a face like that? Prepared to lead customers down the path for their own benefit! Every one has a bias. It just gets me when these morons get there and say we are not biased, we only care for you. If there is a better product say CBus compared to Australian Super (still within the ISA) Would a CBus adviser recommend the customer goes to Australian Super. Not on your life! Self interest is as strong in the ISA as in any other part of the community. Their negative advertising has worked though. It may take this Royal Commission to make people to sit up and listen. It takes the facts to be forced in their faces, for the public to listen. The exposure of union corruption in the paper turned the polls (what did the public think was happening?) we will have the same i imagine when the realities start to be exposed with the Royal Commission.

  • Alistair on 17/02/2014 10:40:27 AM

    David Whitely and his ilke are merely interested in themselves. Meaningful regulation of this industry which satisfies both client and the advice industry is NOT what Whitely wants as it further results in the ability for the advice industry to flourish, thereby compelling the ISN to come up with meaningful ways to serve their clients rather than push product and not disclose clear conflicts the ISN has. In other words David, stop trying to protect your little empire, start thinking about the members your purport to represent and face commercial reality in the interest of your members. Put simply, compete properly in a commercial sense, get your head out of your backside and start facing the prospect of competition. Now that, is what Whitely is worried about. Protecting his patch not the client and certainly not the advisers.

  • Don'tshootthemessenger on 17/02/2014 11:22:30 AM

    Mervin, you should be thanking NOT shooting the messenger. Regardless of the ISN's motivation, legal firm Arnold Bloch Leibler has warned of a potential risk to advisers and their businesses. Your attack on the ISN and the unions is just a distraction from the fact that this government is going to dilute consumer protections in order to pay its electoral debt to various elements in our industry who helped them get elected. What's more, the LNP are trying to avoid the publicity of doing so by using regulations rather than legislation to sneak it through the parliament and in doing so are putting advisers at risk. I have a question for you, if the government were doing the right thing by consumers, why not use legislation and not regulation. At least this would better protect you and other advisers in the long term.

  • PETER CORRIE on 17/02/2014 2:50:34 PM

    The risks of being a Financial Adviser and likelihood of litigation have never been higher as the current FOFA regulations expose us to and their enforcement by ASIC.
    The Liberal Party thank God is going to change Opt in, Best Duty, Fee disclosure etc by forthcoming legislation to help us and the consumer towards a more reasonable and equitable relationship.
    David Whitely at ISN lives in a different and protected world no matter what their results might be. I don't think we have to be too concerned that Industry funds are competition as they can never replace personal,responsive and comprehensive service.
    The Socialist concept of collectiveness,compulsion or coercion by Labor and its advocates will never work or produce business growth that we need in a free ,capitalist and democratic society.

  • GAB on 17/02/2014 4:03:10 PM

    I notice that consumer saviours "CHOICE" are lobbying strongly against the repeals...that's strange, because I'm sure they receive(d) commissions (let's call them referral fees) from enticing people into the Big Switch. They also receive magazine subscriptions by way of direct debits that the consumer has to "turn off" if they want to unsubscribe.

    The lure of commissions was clearly too strong for Christopher Zinn from CHOICE, who left and joined Lachlan Harris of the Big Switch (an ex-Rudd staffer). The Big Switch earned their money from commissions paid by the banks and then handed over a referral fee to CHOICE...oh dear oh dear oh dear...apparently just enough fee to cover costs we were told...LOL. So I guess they turn the tap off when costs are covered?

  • James Smith on 17/02/2014 4:44:28 PM

    Don'tshootthemessenger the reality is that the messenger has shot themselves. It is clear to all in the industry that Whitely and the ISN have been pushing their own product agenda (perceived low cost marketed direct to the public) from the outset. Their voice is now met with deserved cynicism from within the industry and it remains to be seen whether the media will take off their blinkers and quest for headline grabs and start reporting the truth. The tragic irony is that these two groups ( the ISN and media ) have positioned themselves as being the voice of the higher moral ground and the public have swallowed it ?

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