Flimsy arguments and scaremongering: FPA

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Flimsy rhetoric fuelling the fires of public fear that advisers will no longer act in their clients best interests are simply misleading, the Financial Planning Association said.
 
Australian consumers have “nothing to fear” from proposed changes to remove the catch-all provision – section 961(B)(2)(g) – of the FOFA best interests duty, said FPA CEO Mark Rantall.
 
Instead, it is “unnecessary scaremongering” which is distorting the facts for political gain, he said.
 
“We are witnessing an extraordinary effort by product providers and those who represent them to build a political position – based on flimsy arguments – in defence of a redundant section of FOFA pertaining to the best interests duty.”
 
Last Friday, Industry Super Australia CEO David Whiteley said the country would be worse off than before FOFA came in, with clients’ best interests no longer top priority if the amendments passed.
 
In its regulation impact statement, released January, the government said removing the catch all provision from the best interests duty would be beneficial for the financial services industry.
 
“[The industry] has expressed concerns that the current provision is unclear due to its open-ended nature and has created significant legal uncertainty on how advisers can actually satisfy the best interests duty.”
 
The government predicted consumer groups would be unhappy with the change due to fears the care duty was being weakened, but said the removal would make the duty more objective and make sure it works as a “true safe harbour” for client protection.
 
In an attempt to counteract damage done by statements from industry bodies such as ISA, the FPA has set out what it terms the “facts about sub-section g”.
 
This includes stating the best interests duty obligations are a statutory obligation in law for the first time, and that the industry pushed for safe harbour steps to provide some criteria for how a financial planner could be judged.

FPA pointed out the obligation does not end with the seven safe harbour steps set out in FOFA.

The best interests duty and related obligations in the Corporations Act require financial planners – when providing personal advice to retail clients – to act in the best interests of their clients, provide appropriate advice, warn the client if advice is based on incomplete or inaccurate information and prioritise the client’s interests. 

“The obligation to warn clients and provide advice that is appropriate was present before FOFA, however the obligation to act in the best interest of the client and to prioritise the client’s interests are new and are not being repealed,” Rantall said.

The proposed change to the best interests duty is simply the removal of the seventh safe harbour step, he stressed.

“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.”

Rantall also pointed out the FPA has its own code of conduct requiring advisers to act in their clients’ best interests. 

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